Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

4)

Proposed maximum aggregate value of transaction:

5)

Total fee paid:

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

Transact such other business as may properly come before the
meeting and any adjournment or postponement of the meeting.

Other
Important Information:



Hasbros Board of Directors recommends that you vote your
shares
FOR
each of the nominees for director,
FOR
the Amendments to the 2003 Stock
Incentive Performance Plan and
FOR
the
ratification of KPMG LLP as the Companys independent
registered public accounting firm for fiscal 2007.

Shareholders of record of Hasbro common stock at the close of
business on April 6, 2007 may vote at the meeting.



You are cordially invited to attend the meeting to vote your
shares in person. If you are not able to do so, you may vote by
Internet, by telephone or by mail. See the enclosed proxy card
and proxy statement for specific instructions.
Please vote
your shares.

PROXY
STATEMENT
2007 ANNUAL MEETING OF SHAREHOLDERS
To be held on May 24, 2007

QUESTIONS
AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL
MEETING

Q:

Why am I receiving these materials?

A:

The Board of Directors (the Board) of Hasbro, Inc.
(the Company or Hasbro) is sending these
proxy materials to you on or about April 16, 2007 in
connection with Hasbros 2007 Annual Meeting of
Shareholders (the Meeting), and the Boards
solicitation of proxies in connection with the Meeting. The
Meeting will take place at 11:00 a.m. local time on
Thursday, May 24, 2007 at Hasbros corporate offices,
1027 Newport Avenue, Pawtucket, Rhode Island 02862. The
information included in this proxy statement relates to the
proposals to be voted on at the Meeting, the voting process, the
compensation of Hasbros most highly paid executive
officers and directors, and certain other required information.
Hasbros 2006 Annual Report to Shareholders is also
enclosed with this mailing.

All shares of the Companys common stock, par value
$.50 per share (Common Stock) owned by you as
of April 6, 2007, the
record date
, may be voted by
you. These shares include those (1) held directly in your
name as the
shareholder of record
, including shares
purchased through Hasbros Dividend Reinvestment and Cash
Stock Purchase Program and (2) held for you as the
beneficial owner
through a broker, bank or other nominee.

Q:

What is the difference between holding shares as a
shareholder of record and as a beneficial owner?

A:

Most Hasbro shareholders hold their shares through a broker,
bank or other nominee rather than directly in their own name as
the shareholder of record. As summarized below, there are some
distinctions between shares held of record and those owned
beneficially.

Shareholder
of Record

If your shares are registered directly in your name with
Hasbros Transfer Agent, Computershare Trust Company, N.A.
(Computershare), you are considered, with respect to
those shares, the
shareholder of record
, and these proxy
materials are being sent directly to you by Computershare on
behalf of Hasbro. As the
shareholder of record
, you have
the right to grant your voting proxy directly to Hasbro or to
vote in person at the Meeting. Hasbro has enclosed a proxy card
for you to use.

Beneficial
Owner

If your shares are held in a stock brokerage account or by a
bank or other nominee, you are considered the beneficial owner
of shares held
in street name
and the proxy materials are
being sent to you by your broker or nominee who is considered,
with respect to those shares, the
shareholder of record.
As the beneficial owner, you

have the right to direct your broker or nominee on how to vote
and are also invited to attend the Meeting. However, since you
are not the
shareholder of record
, you may not vote these
shares in person at the Meeting unless you receive a proxy from
your broker or nominee. Your broker or nominee has enclosed a
voting instruction card for you to use. If you wish to attend
the Meeting and vote in person, please mark the box on the
voting instruction card received from your broker or nominee and
return it to them so that you can receive a legal proxy to
present at the Meeting.

Q:

How can I attend the Meeting?

A:

You may attend the Meeting if you are listed as a shareholder of
record as of April 6, 2007 and bring proof of your
identification. If you hold your shares through a broker or
other nominee, you will need to provide proof of your share
ownership by bringing either a copy of a brokerage statement
showing your share ownership as of April 6, 2007, or a
legal proxy if you wish to vote your shares in person at the
Meeting. In addition to the items mentioned above, you should
bring proof of your identification.

Q:

How can I vote my shares in person at the Meeting?

A:

Shares held directly in your name as the
shareholder of
record
may be voted in person at the Meeting. If you choose
to do so, please bring the enclosed proxy card and proof of
identification. Shares beneficially owned may be voted by you if
you receive and present at the Meeting a proxy from your broker
or nominee, together with proof of identification. Even if you
plan to attend the Meeting, we recommend that you also submit
your proxy or voting instructions as described below so that
your vote will be counted if you later decide not to attend the
Meeting or are otherwise unable to attend.

Q:

How can I vote my shares without attending the Meeting?

A:

Whether you hold shares directly as the shareholder of record or
beneficially in street name, you may direct your vote without
attending the Meeting. You may vote by granting a proxy or, for
shares held in street name, by submitting voting instructions to
your broker or nominee. In most instances, you will be able to
do this over the Internet, by telephone or by mail. Please refer
to the summary instructions below and those included on your
proxy card or, for shares held in street name, the voting
instruction card included by your broker or nominee.

By Internet
 If you have Internet access, you
may submit your proxy from any location in the world by
following the Vote by Internet instructions on the
proxy card.

By Telephone
 You may submit your proxy by
following the Vote by Telephone instructions on the
proxy card.

By Mail
 You may do this by marking, dating
and signing your proxy card or, for shares held in street name,
the voting instruction card provided by your broker or nominee,
and mailing it in the enclosed, self-addressed, postage prepaid
envelope. No postage is required if mailed in the United States.

Q:

How are votes counted?

A:

Each share of Common Stock entitles its holder to one vote on
all matters to come before the Meeting, including the election
of directors. In the election of directors, for each of the
nominees you may vote FOR such nominee or your vote
may be WITHHELD with respect to such nominee. For
the other proposals, you may vote FOR,
AGAINST or ABSTAIN. If you
ABSTAIN, it has the same effect as a vote
AGAINST the proposal.

If you sign and submit your proxy card or voting instruction
card with no instructions, your shares will be voted in
accordance with the recommendations of the Board. Please note
that, as is described below, this does not apply to any units of
the Hasbro Stock Fund which you hold in Hasbros 401(k)
Retirement Savings Plan.

If you are a shareholder of record and do not return your signed
proxy card, your shares will not be voted.

If you are a beneficial shareholder and do not return your
voting instruction card, your shares may be voted in situations
where brokers have discretionary voting authority over the
shares. With respect to the approval of the Amendments to the
2003 Stock Incentive Performance Plan and the
Sustainability Report-Hasbro, Inc.

shareholder proposal, discretionary voting authority is not
permitted. For these proposals shares held by beneficial
shareholders for which voting instructions are not submitted
will not be voted.

Q:

Can I change my vote or revoke my proxy?

A:

You may change your proxy instructions at any time prior to the
vote at the Meeting. For shares held directly in your name, you
may accomplish this by granting another proxy that is properly
signed and bears a later date, by sending a properly signed
written notice to the Secretary of the Company or by attending
the Meeting and voting in person. To revoke a proxy previously
submitted by telephone or through the Internet, you may simply
vote again at a later date, using the same procedures, in which
case your later submitted vote will be recorded and your earlier
vote revoked. Attendance at the Meeting will not cause your
previously granted proxy to be revoked unless you specifically
so request. For shares held beneficially by you, you may change
your vote by submitting new voting instructions to your broker
or nominee.

Q:

What does it mean if I receive more than one proxy or voting
instruction card?

A:

It means your shares are registered differently or are held in
more than one account. Please provide voting instructions for
all proxy and voting instruction cards you receive.

Q:

Where can I find the voting results of the Meeting?

A:

We will announce preliminary voting results at the Meeting. We
will publish final voting results in a Current Report on
Form 8-K
within a few days following the Meeting and in our quarterly
report on
Form 10-Q
for the second quarter of fiscal 2007.

Q:

What is the quorum for the Meeting?

A:

Holders of record (the Shareholders) of the Common
Stock on April 6, 2007 are entitled to vote at the Meeting
or any adjournments thereof. As of that date there were
160,096,316 shares of Common Stock outstanding and entitled
to vote and a majority of the outstanding shares will constitute
a quorum for the transaction of business at the Meeting.
Abstentions and broker non-votes are counted as present at the
Meeting for purposes of determining whether there is a quorum at
the Meeting. A broker non-vote occurs when a broker holding
shares for a customer does not vote on a particular proposal
because the broker has not received voting instructions on the
matter from its customer and is barred by stock exchange rules
from exercising discretionary authority to vote on the matter.

Q:

How do participants in the Hasbro 401(k) Retirement Savings
Plan vote their shares?

A:

If your account in the Hasbro 401(k) Retirement Savings Plan has
units of the Hasbro Stock Fund, the accompanying proxy card
indicates the number of shares of Common Stock beneficially
owned by you under the Retirement Savings Plan. When a
participant proxy card is returned properly signed and
completed, Fidelity Management Trust Company (the
Trustee) will vote the participants shares in
the manner directed by the participant. If the participant makes
no directions, the Trustee will not vote the shares.

Q:

What happens if I have consented to electronic delivery of
the proxy statement and other annual meeting materials?

A:

If you have consented to electronic delivery of the annual
meeting materials you will receive an email notice with
instructions on how to access the proxy statement, notice of
meeting and annual report on the Companys website, and in
the case of the proxy card, on Computershares website. The
notice will also inform you how to vote your proxy over the
Internet. You will receive this email notice at approximately
the same time paper copies of the annual meeting materials are
mailed to shareholders who have not consented to receive
materials electronically. Your consent to receive the annual
meeting materials electronically will remain in effect until you
specify otherwise.

Q:

If I am a shareholder of record how do I consent to receive
my annual meeting materials electronically?

A:

Shareholders of record that choose to vote their shares via the
Internet will be asked to choose a delivery preference prior to
voting their shares. After entering the access information
requested by the electronic voting site, click Login
and then respond as to whether you would like to receive proxy
material via

electronic
delivery. If you would like to receive future
proxy materials electronically click the Yes button,
enter and verify your current email address and then click
Continue. If you do not wish to choose the
electronic delivery option, click the No Thanks
button, indicating you do not wish to receive your annual
meeting materials electronically, and then click the
Continue button to begin the voting process. During
the year, shareholders of record may sign up to receive their
annual meeting materials electronically over the Internet. To
sign up registered shareholders can go to the website
www.computershare.com/us/ecomms. Shareholders of record with
multiple Hasbro accounts will need to consent to electronic
delivery for each account separately.

ELECTION
OF DIRECTORS

(Proposal No. 1)

Twelve directors are to be elected at the Meeting. All of the
directors elected at the Meeting will serve until the 2008
Annual Meeting of Shareholders (the 2008 Meeting),
and until their successors are duly elected and qualified, or
until their earlier death, resignation or removal.

The Board has recommended as nominees for election as directors
to serve until the 2008 Meeting the persons named in the table
below. All of the nominees are currently directors of the
Company. Proxies cannot be voted for more than twelve directors
at the Meeting.

Unless otherwise specified in the accompanying proxy card, the
shares voted pursuant thereto will be cast for the persons named
below as nominees for election as directors. If, for any reason,
any of the nominees named below should be unable to serve as a
director, it is intended that such proxy will be voted for the
election, in his or her place, of a substituted nominee who
would be recommended by management. Management, however, has no
reason to believe that any nominee named below will be unable to
serve as a director.

The following tables set forth as to each nominee for election
at the Meeting: (i) his or her age; (ii) all positions
and offices with the Company; (iii) principal occupation or
employment during the past five years; (iv) other
directorships of publicly-held companies or investment
companies; and (v) period of service as a director of the
Company. Except as otherwise indicated, each person has had the
same principal occupation or employment during the past five
years.

Chairman Emeritus of Hill,
Holliday, Connors, Cosmopulos, Inc. (full-service advertising
agency) since 2006. Chairman of Hill, Holliday, Connors,
Cosmopulos, Inc. from 1995 until 2006, during which time
Mr. Connors also served as President and Chief Executive
Officer until 2003.

2004

Michael W.O. Garrett

64

Served in a number of positions
with Nestlé S.A. (international food and beverage company),
most recently as Executive Vice President of Nestlé S.A.
responsible for Asia, Africa, the Middle East and Oceania until
2005. Board member of the Nestlé company in India and
non-executive director on the boards of Prudential PLC, UK and
the Bobst Group in Switzerland.

2005

E. Gordon Gee

63

Chancellor, Vanderbilt University
since 2000. Director of Dollar General Corporation, Gaylord
Entertainment Company, The Limited, Inc. and Massey Energy
Company.

1999

Jack M. Greenberg

64

Chairman of The Western Union
Company (funds transfer company) since 2006. Chief Executive
Officer of McDonalds Corporation (restaurant franchiser)
from August 1998 to December 2002. Chairman of the Board of
McDonalds Corporation from May 1999 until December 2002.
Director of Abbott Laboratories, The Allstate Corporation,
InnerWorkings, Inc., Manpower, Inc. and The Western Union
Company.

2003

Alan G. Hassenfeld

58

Chairman of the Board since 1989.
Prior to May 2003, Chairman of the Board and Chief Executive
Officer since 1999. Prior thereto, Chairman of the Board,
President and Chief Executive Officer since 1989. Director of
salesforce.com, inc.

1978

Claudine B. Malone

70

President and Chief Executive
Officer, Financial and Management Consulting, Inc. (consulting
firm) since 1984. Director of Novell Inc. Ms. Malone
previously served as a Director of Hasbro from 1992 to 1999.

2001

Edward M. Philip

41

Managing General Partner, Highland
Consumer Fund (consumer oriented private equity fund) since
2006. Prior thereto, President and Chief Executive Officer of
Decision Matrix Group, Inc. (research and consulting firm) from
May 2004 to November 2005. Prior thereto Senior Vice President
of Terra Networks, S.A. (global internet company) from October
2000 to January 2004.

2002

Paula Stern

62

Chairwoman, The Stern Group, Inc.
(international advisory firm in the areas of business and
government strategy) since 1988. Director of Avaya, Inc.

President and Chief Executive
Officer since May 2003. Prior thereto, President and Chief
Operating Officer from 2001 to May 2003. Prior thereto,
President, Chief Operating Officer and Chief Financial Officer
from 2000 to 2001. Director of FM Global.

1992

Mr. Verrecchia also serves as an officer and director of a
number of the Companys subsidiaries at the request and
convenience of the Company.

Vote Required.
The affirmative vote of a
majority of those shares of Common Stock present (in person or
by proxy) and entitled to vote at the Meeting on the election of
directors is required to elect directors. As such, a withhold
vote is effectively a vote against a director.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE
FOR
THE ELECTION OF THE TWELVE NOMINEES
NAMED ABOVE.

Hasbro has a Code of Conduct which is applicable to all of the
Companys employees, officers and directors, including the
Companys Chief Executive Officer, Chief Financial Officer
and Controller. The Code of Conduct addresses such issues as
conflicts of interest, protection of confidential Company
information, financial integrity, compliance with laws, rules
and regulations, insider trading and proper public disclosure.
Compliance with the Code of Conduct is mandatory for all Company
employees, officers and directors. Any violation of the Code of
Conduct can subject the person at issue to a range of sanctions,
including dismissal.

The Code of Conduct is available on Hasbros website at
www.hasbro.com, under Corporate Information 
Investors  Corporate Governance. Although the
Company generally does not intend to provide waivers of, or
amendments to, the Code of Conduct for its Chief Executive
Officer, Chief Financial Officer, Controller, or any other
officers, directors or employees, information concerning any
waiver of, or amendment to, the Code of Conduct for the Chief
Executive Officer, Chief Financial Officer, Controller, or any
other executive officer or director of the Company, will be
promptly disclosed on the Companys website in the location
where the Code of Conduct is posted.

Corporate
Governance Principles

Hasbro has adopted a set of Corporate Governance Principles
which address qualifications for members of the Board of
Directors, director responsibilities, director access to
management and independent advisors, director compensation and
many other matters related to the governance of the Company. The
Corporate Governance Principles are available on Hasbros
website at www.hasbro.com, under Corporate
Information  Investors  Corporate
Governance.

Director
Independence

Hasbros Board has adopted Standards for Director
Independence (the Independence Standards) in
accordance with the New York Stock Exchanges corporate
governance listing standards. The Independence Standards specify
criteria used by the Board in making determinations with respect
to the independence of its members and include strict guidelines
for directors and their immediate family members with respect to
past employment or affiliation with the Company or its
independent auditor.

The Independence Standards restrict commercial relationships
between directors and the Company and include the consideration
of other relationships with the Company, including charitable
relationships, in making independence determinations. Using the
Independence Standards, the Board has determined that each of
the following directors are independent and have no
relationships which impact an independence determination under
the Companys Independence Standards: Basil L. Anderson,
Alan R. Batkin, Frank J. Biondi, Jr., John M.
Connors, Jr., Michael W.O. Garrett, E. Gordon Gee, Jack M.
Greenberg, Claudine B. Malone, Edward M. Philip and Paula Stern.

Of the Companys directors who were determined to be
independent, there were only two directors who had relationships
which needed to be considered by the Board. Mr. Greenberg
was Chairman and Chief Executive Officer of McDonalds
Corporation through December 31, 2002. To date
Mr. Greenberg remains an employee of McDonalds. The
Company and McDonalds are party to certain arrangements
pursuant to which (i) the Company licenses its intellectual
property to McDonalds for use in promotions, (ii) the
Company sells certain products to McDonalds and
(iii) McDonalds licenses its brand to the Company for
the use in certain Company products. The payments from the
Company to McDonalds and from McDonalds to the
Company pursuant to these arrangements do not arise to the
levels which would raise an issue under the Companys
independence standards. The other relationship which was
considered is the Companys use of applicant tracking and
recruitment software and services provided by Vurv Technologies,
Inc. (Vurv). Jim Philip, a member of the board of
directors and a shareholder of Vurv, is the brother of Edward M.
Philip. The payments from the Company pursuant to this
arrangement also do not meet the thresholds set in the
Companys independence standards. The arrangement with Vurv
is described in more detail on pages 12 and 13 of this
proxy statement.

The only two members of the Companys Board who were
determined not to be independent were Alan G. Hassenfeld
(formerly an executive officer of the Company) and Alfred J.
Verrecchia (current President and Chief Executive Officer of the
Company). The Independence Standards are available on
Hasbros website at www.hasbro.com, under Corporate
Information  Investors  Corporate
Governance and a copy is also attached as Appendix A
to this proxy statement.

Board
Meetings and Director Attendance at the Annual
Meeting

During 2006, the Board held six meetings. All directors attended
at least 75% of the aggregate of (i) the Board meetings
held during their tenure as directors during 2006 and
(ii) the meetings of any committees held during their
tenure as members of such committees during 2006. Although the
Company does not have a formal policy requiring attendance of
directors at the annual meeting of shareholders, the expectation
of the Company and the Board is that all directors will attend
the annual meeting of shareholders unless conflicts prevent them
from attending. All twelve members of the Board attended the
2006 Annual Meeting of Shareholders.

Presiding
Non-Management Director and Communicating with the
Board

Executive sessions of the independent members of the
Companys Board are presided over by the presiding director
(the Presiding Director). Basil L. Anderson
currently serves as the Presiding Director, a position which is
typically rotated among the chairs of the Audit, Compensation,
Finance and Nominating, Governance and Social Responsibility
Committees. Effective on May 24, 2007, Jack M. Greenberg is
scheduled to become the Presiding Director. Interested parties
may contact the Presiding Director confidentially by sending
correspondence to
c/o Presiding
Director, Hasbro, Inc., P.O. Box 495, Pawtucket, Rhode
Island 02860. Persons may also contact the Board as a whole
through the Presiding Director in the manner set forth in the
preceding sentence.

Board
Committees

Audit Committee.
The Audit Committee of
the Board, which currently consists of Basil L. Anderson
(Chair), Michael W.O. Garrett, Claudine B. Malone and Edward M.
Philip, held eleven meetings in 2006. The Audit Committee is
responsible for the appointment, compensation and oversight of
the Companys independent auditor and assists the Board in
fulfilling its responsibility to oversee managements
conduct of the Companys financial reporting process, the
financial reports provided by the Company, the Companys
systems of internal accounting and financial controls, and the
quarterly review and annual independent audit of the
Companys financial statements. The current Audit Committee
Charter adopted by the Board is available on the Companys
website at www.hasbro.com, under Corporate
Information  Investors  Corporate
Governance.

The Board has determined that each member of the Audit Committee
meets both the Companys Independence Standards and the
requirements for independence under the New York Stock
Exchanges corporate governance listing standards. The
Board has determined that three of the four current Audit
Committee members (Basil L. Anderson, Claudine B. Malone and
Edward M. Philip) qualify as Audit Committee Financial Experts,
as such term is defined in the rules and regulations promulgated
by the United States Securities and Exchange Commission.

The Board does not have a policy setting rigid limits on the
number of audit committees on which a member of the
Companys Audit Committee can serve. Instead, in cases
where an Audit Committee member serves on more than three public
company audit committees, the Board evaluates whether such
simultaneous service would impair the service of such member on
the Companys Audit Committee. One member of the
Companys Audit Committee, namely Mr. Anderson, serves
on more than three public company audit committees. The Board
has made a determination that such simultaneous service does not
impair Mr. Andersons service on the Companys
Audit Committee.

Compensation Committee.
The
Compensation Committee of the Board, which currently consists of
John M. Connors, Jr. (Chair), Frank J. Biondi, Jr. and
E. Gordon Gee, held six meetings in 2006. The Compensation
Committee is responsible for establishing and overseeing the
compensation and benefits for the Companys senior
management, including all of the Companys executive
officers, is authorized to make grants and awards under the
Companys employee stock equity plans and shares
responsibility for evaluation of the Companys Chief
Executive Officer with the Nominating, Governance and Social
Responsibility Committee.

The current Compensation Committee Charter adopted by the Board
is available on the Companys website at www.hasbro.com,
under Corporate Information 
Investors  Corporate Governance. The Board has
determined that each member of the Compensation Committee meets
both the Companys Independence Standards and the
requirements for independence under the New York Stock
Exchanges corporate governance listing standards. For a
further description of the Compensation Committee and its
composition please see the Compensation Committee Report on
page 13 of this proxy statement.

Executive Committee.
The Executive
Committee of the Board, which currently consists of Alan G.
Hassenfeld (Chair), Basil L. Anderson, John M.
Connors, Jr., Jack M. Greenberg, Edward M. Philip and
Alfred J. Verrecchia, did not meet in 2006. The Executive
Committee acts on such matters as are specifically assigned to
it from time to time by the Board and is vested with all of the
powers that are held by the Board, except that by law the
Executive Committee may not exercise any power of the Board
relating to the adoption of amendments to the Companys
Articles of Incorporation or By-laws, adoption of a plan of
merger or consolidation, the sale, lease or exchange of all or
substantially all of the property or assets of the Company or
the voluntary dissolution of the Company. The current Executive
Committee Charter adopted by the Board is available on the
Companys website at www.hasbro.com, under Corporate
Information  Investors  Corporate
Governance.

Finance Committee.
The Finance
Committee of the Board, which currently consists of Edward M.
Philip (Chair), Jack M. Greenberg and Claudine B. Malone, met
three times during 2006. The Finance Committee assists the Board
in overseeing the Companys annual and long-term financial
plans, capital structure, use of funds, investments, financial
and risk management and proposed significant transactions. The
current Finance Committee Charter adopted by the Board is
available on the Companys website at www.hasbro.com, under
Corporate Information  Investors 
Corporate Governance. The Board has determined that each
member of the Finance Committee meets both the Companys
Independence Standards and the requirements for independence
under the New York Stock Exchanges corporate governance
listing standards.

Nominating, Governance and Social Responsibility
Committee.
The Nominating, Governance and
Social Responsibility Committee of the Board (the
Nominating Committee), which currently consists of
Jack M. Greenberg (Chair), Alan R. Batkin, John M.
Connors, Jr. and Paula Stern, met three times in 2006. The
Nominating Committee identifies and evaluates individuals
qualified to become Board members and makes recommendations to
the full Board for possible additions to the Board and on the
director nominees for election at the Companys annual
meeting. The Nominating Committee also oversees and makes
recommendations regarding the governance of the Board and the
committees thereof, including the Companys governance
principles and Board and Board committee evaluations, and shares
with the Compensation Committee responsibility for evaluation of
the Chief Executive Officer.

In addition, the Nominating Committee periodically reviews, and
makes recommendations to the full Board with respect to, the
compensation paid to non-employee directors for their service on
the Companys Board, including the structure and elements
of non-employee director compensation. In structuring the
Companys director compensation, the Nominating Committee
seeks to attract and retain talented directors who will
contribute significantly to the Company, fairly compensate
directors for their work on behalf of the Company and align the
interests of directors with those of shareholders. As part of
its review of director compensation, the Nominating Committee
reviews external director compensation benchmarking studies to
assure that director compensation is set at reasonable levels
which are commensurate with those prevailing at other similar
companies and that the structure of the Companys
non-employee director compensation programs is effective in
attracting and retaining top directors. Beginning in 2006 the
Company eliminated stock options as part of its non-employee
director compensation program and is instead granting its
non-employee directors annual stock awards with a value of
$90,000 on the date of grant. The Nominating Committee
recommended, and the full Board approved, this change to the
Companys non-employee director compensation program
because they believed stock awards would be more effective in
aligning the interests of the non-employee directors with those
of stockholders. Also in 2006, the Company adopted director
stock ownership guidelines which require that a director may not
sell any shares of the Companys common stock, including
shares acquired as part of the yearly equity grant, until the
director holds shares of common stock with a value equal to at
least five times the current non-employee directors annual
retainer (currently requiring holdings with a value of $275,000).

Further, the Nominating Committee oversees the Companys
codes of business conduct and ethics, and analyzes issues of
social responsibility and related corporate conduct, including
sustainability, philanthropy and transparency. The current
Nominating, Governance and Social Responsibility Committee
Charter adopted by the Board is available on the Companys
website at www.hasbro.com, under Corporate
Information  Investors  Corporate
Governance. The Board has determined that each member of
the Nominating Committee meets both the Companys
Independence Standards and the requirements for independence
under the New York Stock Exchanges corporate governance
listing standards.

In making its nominations for election to the Board the
Nominating Committee seeks candidates who meet the current
challenges and needs of the Board. As part of this process the
committee considers a number of factors, including, among
others, a candidates employment and other professional
experience, past expertise and involvement in areas which are
relevant to the Companys business, business ethics and
professional reputation, independence, other board experience,
and the Companys desire to have a Board that represents a
diverse mix of backgrounds, perspectives and expertise. The
Nominating Committee will consider nominees recommended by
shareholders for election to the Board if such nominations are
made in accordance with the process set forth in the following
pages under Shareholder Proposals and Director
Nominations.

The Nominating Committee uses multiple sources for identifying
and evaluating nominees for director, including referrals from
current directors, recommendations by shareholders and input
from third-party executive search firms. Third-party executive
search firms assist the Board by identifying candidates with
expertise and experience relevant to the Companys business
who are interested in serving on the Companys Board. The
Nominating Committee will consider and evaluate candidates
recommended by shareholders on the same basis as candidates
recommended by other sources.

As of December 19, 2006 (the date that is 120 calendar days
before the first anniversary of the release date of the proxy
statement for the Companys last Annual Meeting of
Shareholders) the Nominating Committee had not received a
recommended nominee for election to the Board in 2007 from an
individual shareholder, or group of shareholders, who
beneficially owned more than 5% of the Companys Common
Stock.

Additional
Availability of Corporate Governance Materials

In addition to being accessible on the Companys website,
copies of the Companys Code of Conduct, Corporate
Governance Principles and the charters of the five Committees of
the Board of Directors are all available free of charge to any
shareholder upon request to the Companys Senior Vice
President, General Counsel and Secretary, c/o Hasbro, Inc.,
1011 Newport Avenue, P.O. Box 1059, Pawtucket, Rhode Island
02862.

Shareholder
Proposals and Director Nominations

General
Shareholder Proposals

Any proposal which a shareholder of the Company wishes to have
considered for inclusion in the proxy statement and proxy
relating to the Companys 2008 annual meeting must be
received by the Secretary of the Company at the Companys
executive offices no later than December 18, 2007 (the date
that is 120 calendar days before the anniversary of the release
date of the proxy statement relating to the 2007 Annual Meeting
of Shareholders). The address of the Companys executive
offices is 1011 Newport Avenue, Pawtucket, Rhode Island 02862.
Such proposals must also comply with the other requirements of
the rules of the United States Securities and Exchange
Commission relating to shareholder proposals.

With the exception of the submission of director nominations for
consideration by the Nominating Committee, which must be
submitted to the Company in the manner described below, any new
business proposed by any shareholder to be taken up at the 2008
annual meeting, but not included in the proxy statement or proxy
relating to that meeting, must be stated in writing and filed
with the Secretary of the Company no later than 150 days
prior to the date of the 2008 annual meeting. Except for
shareholder proposals made pursuant to the preceding paragraph,
the Company will retain discretion to vote proxies at the 2008
annual meeting with respect to proposals received prior to the
date that is 150 days before the date of such meeting,
provided (i) the Company includes in its 2008 annual
meeting proxy statement advice on the nature of the proposal and
how it intends to exercise its voting discretion and
(ii) the proponent does not issue a proxy statement.

The Companys By-laws provide that shareholders may
themselves nominate directors for consideration at an annual
meeting provided they give notice to the Secretary of the
Company not less than 60 days nor more than 90 days
prior to the one-year anniversary date of the immediately
preceding annual meeting and provide specified information
regarding the proposed nominee and each shareholder proposing
such nomination. Nominations made by shareholders in this manner
are eligible to be presented by the shareholder to the meeting,
but such nominees will not have been considered by the
Nominating Committee as a nominee to be potentially supported by
the Company.

To be considered by the Nominating Committee, director
nominations must be submitted to the Senior Vice President,
General Counsel and Secretary of the Company at the
Companys executive offices, 1011 Newport Avenue,
Pawtucket, Rhode Island 02862 at least 120 days prior to
the one-year anniversary of the release to the Companys
shareholders of the proxy statement for the preceding
years annual meeting. As such, director nominations to be
considered for the Companys 2008 Annual Meeting of
Shareholders must be submitted no later than December 18,
2007. The Nominating Committee is only required to consider
recommendations made by shareholders, or groups of shareholders,
that have beneficially owned at least 1% of the Companys
Common Stock for at least one year prior to the date the
shareholder(s) submit such candidate to the Nominating Committee
and who undertake to continue to hold at least 1% of the
Companys Common Stock through the date of the next annual
meeting. In addition, a nominating shareholder(s) may only
submit one candidate to the Nominating Committee for
consideration.

Submissions to the Nominating Committee should include
(a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director (i) the
name, age, business address and residence address of the person,
(ii) the principal occupation or employment of the person,
(iii) the class or series and number of shares of capital
stock of the Company that are owned beneficially or of record by
the person, (iv
)
any other information relating to the
person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection
with solicitations of proxies for election of directors pursuant
to Section 14 of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and the rules and
regulations promulgated thereunder, and (v) confirmation
that the candidate is independent under the Companys
Independence Standards and the rules of the New York Stock
Exchange, or if the candidate is not independent under all such
criteria, a description of the reasons why the candidate is not
independent; and (b) as to the shareholder(s) giving the
notice (i) the name and record address of such
shareholder(s) and each participant in any group of which such
shareholder is a member, (ii) the class or series and
number of shares of capital stock of the Company that are owned
beneficially or of record by such shareholder(s) and each
participant in any group of which such shareholder is a member,
(iii) if the nominating shareholder is not a record holder
of the shares of capital stock of the Company, evidence of
ownership as provided in
Rule 14a-8(b)(2)
under the Exchange Act, (iv) a description of all
arrangements or understandings between such shareholder(s) and
each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made
by such shareholder(s), and (v) any other information
relating to such shareholder(s) that would be required to be
disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder.

The Nominating Committee may require that any proposed nominee
for election to the Board furnish such other information as may
reasonably be required by the Nominating Committee to determine
the eligibility of such proposed nominee to serve as director of
the Company. The written notice from the nominating shareholder
specifying a candidate to be considered as a nominee for
election as a director must be accompanied by a written consent
of each proposed nominee for director. In this written consent
the nominee must consent to (i) being named as a nominee
for director, (ii) serve as a director and represent all
shareholders of the Company in accordance with applicable laws
and the Companys Articles of Incorporation, By-laws and
other policies if such nominee is elected, (iii) comply
with all rules, policies or requirements generally applicable to
non-employee directors of the Company, and (iv) complete
and sign customary information requests upon the request of the
Company.

The Company has a policy that any transaction which would
require disclosure under Item 404(a) of
Regulation S-K
of the rules and regulations of the United States Securities and
Exchange Commission, with respect to a director or nominee for
election as a director, must be reviewed and approved or
ratified by the Companys full Board, excluding any
director interested in such transaction. All other related party
transactions which would require disclosure under
Item 404(a), including, without limitation, those involving
executive officers of the Company, must be reviewed and approved
or ratified by either the Companys full Board or a
committee of the Board which has been delegated with such duty.
Any such related party transactions will only be approved or
ratified if the Board, or the applicable committee of the Board,
determines that such transaction will not impair the involved
persons service to, and exercise of judgment on behalf of,
the Company, or otherwise create a conflict of interest which
would be detrimental to the Company. This policy is contained in
Section 20, entitled Code of Conduct; Conflicts of
Interest of the Companys Corporate Governance
Principles. Although the Company adopted this policy in 2007,
all of the transactions disclosed below, even those entered into
before this policy was adopted, have been reviewed and approved
or ratified by the Companys Board.

The Companys wholly-owned subsidiary, Hasbro Canada
Corporation (Hasbro Canada), leases an office and
warehouse facility from Central Toy Manufacturing Inc.
(CTM), a real estate corporation which is 25% owned
by the estate of Merrill Hassenfeld, a former Chief Executive
Officer and director of the Company. Sylvia K. Hassenfeld, a
former director of the Company and mother of the Companys
Chairman, Alan G. Hassenfeld, is executrix and a beneficiary of
the estate of Merrill Hassenfeld. During 2000, the CTM lease was
renewed for a three-year term ending on January 31, 2004 at
rentals of approximately $579,000, $589,000 and $599,000
Canadian for the three years, respectively. During 2003 a new
lease was signed for a six-year term ending on January 31,
2010, with one three-year renewal option that Hasbro Canada can
exercise at the end of the term. The new lease also provided
Hasbro Canada with a right to terminate the lease on
January 31, 2007, or at any time thereafter, upon six
months written notice. The rent provided for in this
six-year lease is $525,000 Canadian per year (approximately
$450,250 U.S. at exchange rates in effect at the end of
2006). In accordance with this new lease, total rent paid by
Hasbro Canada to CTM for the lease of the office and warehouse
facility in 2006 was approximately $450,250 U.S. at
exchange rates in effect at the end of 2006. In
managements opinion, this lease is on terms at least as
favorable as would otherwise presently be obtainable from
unrelated parties.

Lucas Licensing Ltd. (Licensing) and Lucasfilm Ltd.
(Film and together with Licensing,
Lucas) own in the aggregate exercisable warrants to
purchase 15,750,000 shares of Common Stock which were
obtained in arms-length negotiations with the Company in
connection with the Companys obtaining certain rights
related to the STAR WARS properties. The Common Stock subject to
such warrants would, if all warrants were fully exercised,
constitute approximately 8.9% of the Companys outstanding
shares as of March 1, 2007. Accordingly, under SEC
Rule 13d-3,
George W. Lucas, Jr., as owner, director and an officer of
Film and Licensing, may be deemed to own approximately 8.9% of
the Companys outstanding shares. See Voting
Securities and Principal Holders Thereof. In fiscal 2006,
the Company paid an aggregate of approximately $2.4 million
in royalties to Licensing pursuant to license agreements entered
into at arms length in the ordinary course of business.

In January 2003, the Company amended its license with Licensing
for the manufacture and distribution of STAR WARS toys and
games. Under the amended agreement the term was extended by ten
years and is expected to run through 2018. In addition, the
minimum guaranteed royalties due to Licensing were reduced by
$85 million. In a separate agreement, the warrants
previously granted to Lucas were also amended. Under this
warrant amendment, the terms of each of the warrants issued to
Lucas were extended by ten years. The warrant amendment
agreement provides the Company with an option through October
2016 to purchase all of these warrants from Lucas for a price to
be paid at the Companys election of either
$200 million in cash or $220 million in Common Stock,
such stock being valued at the time of the exercise of the
option. Also, the warrant amendment agreement provides Lucas
with an option through January 2008 to sell all of these
warrants to the Company for a price to be paid at the
Companys election of either $100 million in cash or
$110 million in Common Stock, such stock being valued at
the time of the exercise of the option.

In December 2005 the Company entered into a three-year
arrangement with Vurv Technologies, Inc. (formerly Recruitmax
Software, Inc.) (Vurv) pursuit to which Vurv
supplies the Company with applicant tracking and

recruitment software and services. Under this agreement the
Company expects to pay Vurv approximately $292,000 over the
course of the three-year term. In fiscal 2006 the Company paid
Vurv $5,742 of the total estimated fee of $292,000 (the Company
had previously paid $137,600 in fiscal 2005). Jim Philip, who is
a member of the board of directors and a shareholder of Vurv, is
the brother of Edward M. Philip, one of the Companys
directors.

Alfred J. Verrecchia, the Companys President and Chief
Executive Officer, is Chairman of Lifespan, a hospital holding
company. Two of Lifespans member hospitals are the Hasbro
Childrens Hospital and the Miriam Hospital. In fiscal
2006, the Company provided approximately $700,000 in aggregate
of money and in-kind donations to the Hasbro Childrens
Hospital and the Miriam Hospital.

Michael Verrecchia, son of Alfred J. Verrecchia, is employed by
the Company as a Director of Marketing. For fiscal 2006, Michael
Verrecchia was paid an aggregate salary and bonus of $160,541.

COMPENSATION
COMMITTEE REPORT

The Compensation Committee (the Committee) of the
Companys Board is responsible for reviewing, approving and
overseeing the compensation and benefits for the Companys
senior management, including all of the Companys executive
officers, and is authorized to make grants and awards under the
Companys employee stock equity plans. The Committee
operates under a written charter which has been established by
the Companys Board. The current Compensation Committee
charter is available on the Companys website at
www.hasbro.com, under Corporate Information 
Investors  Corporate Governance.

The Committee is composed solely of persons who are both
Non-Employee Directors, as defined in
Rule 16b-3
of the rules and regulations of the United States Securities and
Exchange Commission, and outside directors, as
defined in Section 162(m) of the Internal Revenue Code of
1986, as amended (the Code). The Board has
determined that each member of the Committee is independent
under the Companys Independence Standards and the
requirements of the New York Stock Exchanges corporate
governance listing standards.

The following section of this proxy statement, entitled
Compensation Discussion and Analysis, contains
detailed descriptions of the processes and policies followed by
the Compensation Committee in reviewing and approving the
compensation and benefits of the Companys executive
officers.

The Committee has reviewed and discussed with management the
Compensation Discussion and Analysis which follows this report.

Based on its review and discussions with management, the
Committee recommended to the Companys full Board and the
Board has approved the inclusion of the Compensation Discussion
and Analysis in this proxy statement for the Meeting and, by
incorporation by reference, in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2006.

Report issued by Jack M. Connors, Jr. (Chair), Frank J.
Biondi, Jr. and E. Gordon Gee as the members of the
Compensation Committee of the Board as of the 2006 fiscal year
end.

COMPENSATION
DISCUSSION AND ANALYSIS

2006
Compensation Policies With Respect to Named Executive
Officers

The Company is a worldwide leader in childrens and family
leisure time and entertainment products and services, including
the design, manufacture and marketing of games, toys and
childrens consumer electronic products. As a family
entertainment company, the Company looks at a broad range of
consumer products, entertainment and general industry companies
as competitors in hiring and retaining employees and executives.
In the family entertainment and consumer products markets where
the Company competes for talent, base compensation, variable
incentive cash compensation, equity compensation and employee
benefits are all significant components of a competitive overall
executive compensation package.

In structuring the compensation of the Companys executive
officers, including the five named executive officers who appear
in the compensation tables following this Compensation
Discussion and Analysis, the Companys fundamental
objectives are to:



Attract and retain talented executives who can contribute
significantly to the achievement of the Companys goals,



Align the interests of the Companys executives with the
medium and long-term goals of the Company and the Companys
shareholders, employees and other stakeholders,



Focus executives on achievement of the Companys goals in a
manner that fosters team performance and a team focus,



Reward superior performance by the Company and its business
units as a whole, and to a lesser extent superior individual
performance, and



Accomplish these objectives effectively while managing the total
cost of the Companys executive compensation program.

To accomplish these objectives the Company employs two
overarching principles in structuring its executive compensation.

First, the Company believes that a significant portion of an
executives overall compensation opportunity should be at
risk and based upon the performance of the Company. As a result,
if the Company fails to achieve its financial goals,
and/or
if
the Companys share price does not rise, significant
portions of the total executive compensation package are not
realized. The Company implements this principle by using
variable elements, such as management incentive plan awards and
equity awards, as a major portion of the total executive
compensation package.

Second, in structuring the performance-based elements of its
compensation program, the Company seeks predominately to reward
overall performance by the Company or its major business units,
and only to a lesser extent, to reward individual executive
performance. The Company believes this is appropriate to foster
an environment of team work and to maximize the performance of
the Company as a whole, as opposed to individuals within the
Company. As a result, the two most significant variable
components of executive compensation, namely management
incentive plan awards and equity awards, are most heavily
weighted to Company goals and Company performance. The incentive
plan awards reward achievement of stated Company and business
unit financial metrics, with individual performance playing a
smaller role. Equity awards also reward achievement of Company
goals and Company stock price appreciation.

Designing
the Executive Compensation Program at Hasbro

Hasbros executive compensation program is structured with
input, analysis, review
and/or
oversight from a number of sources. Those sources include the:



Compensation Committee of the Companys Board (the
Committee),



Benchmarking studies and other comparative compensation
information,



Outside compensation consultants,



Companys Chief Executive Officer, and



Companys Human Resources Department.

In designing the fiscal 2006 compensation program, the Company
reviewed benchmarking information to establish reference points
for base salaries, management incentive plan awards and equity
awards being offered by comparable general industry and consumer
products companies. In particular, the Company conducted a
detailed review of three benchmarking studies. For purposes of
establishing reference points for base salaries and incentive
plan awards the Company reviewed Hewitt Executive Total
Compensation Measurement Survey, prepared by

Hewitt Associates, LLP, and Towers Perrins Executive
Compensation Databank. For purposes of establishing reference
points for equity compensation the Company reviewed the Mercer
Wall Street Journal 350 as well as Towers Perrins
Executive Compensation Databank. Within these surveys the
Company focuses on the following types of companies:
(i) companies in the general industry category with total
annual revenues between $3 and $6 billion, and for purposes
of benchmarking compensation for Mr. Gardner, who was in
charge of the Companys European business unit, with
relevant group revenues between $800 million and
$2 billion, within Towers Perrins Executive
Compensation Databank, (ii) approximately 46 consumer
products and consumer facing companies, with median annual
revenues across all of those companies of $6.6 billion,
within the Hewitt Executive Total Compensation Measurement
Survey, and (iii) companies in the general industry
category with median total annual revenues of $7 billion
under the Mercer Wall Street Journal 350.

In reviewing the proposed 2006 compensation program, the
Committee also worked with Mercer Human Resource Consulting
(Mercer) who served as an outside compensation
consultant for the Committee. Although in the past Mercer has
performed work for both the Company and the Committee, in the
case of providing this assistance to the Committee, Mercer was
retained by, and reported directly to, the members of the
Committee. Mercer advised the Committee with respect to the
Committees review of the Companys 2006 executive
compensation programs and provided additional information as to
whether the Companys anticipated 2006 executive
compensation programs were competitive, and were effective in
promoting the performance of the Companys executives and
achievement of the Companys financial goals. Starting with
the design of the 2007 compensation program, Mercer is expected
to primarily perform executive compensation work directly for
the Committee and will not perform any other compensation
consulting or other work for the Company without the prior
approval of the Chair of the Compensation Committee. Another
compensation consultant selected by the Company is expected to
perform specified other services for the Company in the future.

The Companys Chief Executive Officer, Senior Vice
President of Human Resources, and Senior Vice President and
General Counsel each attend portions of the meetings of the
Committee. However, the Committee also regularly considers and
discusses issues without the presence of any officers of the
Company.

For named executive officers other than the Chief Executive
Officer, as well as for the Companys other executive
officers, the Companys Chief Executive Officer makes
recommendations for each individuals compensation package
to the Compensation Committee. In making these recommendations
the Chief Executive Officer considers the individuals
performance, benchmarking information and input from the
Companys Human Resources Department. The Committee then
discusses these recommendations with the Chief Executive
Officer, both with and without the presence of the
Companys Senior Vice President of Human Resources and
outside compensation consultants. The Committee further reviews
and discusses these recommendations in executive session without
any members of management present. For the Chief Executive
Officer, the Committee directly determines the compensation
package, receiving input as it deems appropriate from the
Companys Human Resources Department, benchmarking
information and the Committees outside compensation
consultant. The Committee does not receive a recommendation as
to the Chief Executive Officers compensation from any
member of the Companys management. In addition to being
reviewed and approved by the Committee, the compensation package
for the Companys Chief Executive Officer is reviewed and
approved by the full Board. The Committee does not delegate, to
management or any other parties, its duties to review the
Companys executive compensation programs.

Although the Company considers the requirements of Code
Section 162(m), and the accounting treatment of various
forms of compensation, in determining the elements of its
executive compensation program and, to the extent it is
consistent with meeting the objectives of the Companys
executive compensation program, structures such compensation to
maximize the ability of the Company to receive a tax deduction
for such compensation, the Company feels strongly that
maximizing the performance of the Company and its executives is
more important than assuring that every element of compensation
complies with the requirements for tax deductibility under
Section 162(m). The Companys performance objectives
under its variable compensation programs are objective within
the meaning of the Code, such as achieving certain net revenues,
operating margin, free cash flow or earnings per share goals,
and as such they generally comply with the requirements of
Section 162(m). However, in certain situations the Company
may feel a particular goal is very important to the Company,
even though it is not objective within the meaning of the Code.
The Company reserves the right to compensate executives for
achievement of such

objectives, or to reflect other individual performance measures
in an executives compensation, even if they do not comply
with the requirements of Section 162(m).

The Company does not have a formal policy requiring executives
to forfeit compensation, either cash or non-cash, to the Company
in the event that there is a financial restatement or some other
negative occurrence after such compensation is paid. However,
there are legal provisions under the Sarbanes-Oxley Act of 2002
which require forfeiture of some elements of compensation in
certain situations. The full Board, the Committee and the
Companys senior management are committed to an environment
in which all of the Companys officers and employees act in
accordance with the highest ethical standards and in accordance
with all legal and accounting requirements. Any failure to do so
will be dealt with on a case by case basis by management, the
Committee and the Board, in the manner they deem appropriate.

Primary
Elements of 2006 Executive Compensation

Executive compensation for fiscal year 2006 was composed of four
primary elements:



base salary,



management incentive awards,



equity awards, and



employee benefits.

The Company uses these four elements in the combination it
believes appropriately divides the compensation of its
executives among fixed and variable components. Some variable
compensation is tied to achievement of yearly financial
objectives. Other compensation, such as option grants vesting
over multiple years and performance share awards with multi-year
performance periods, are tied to the achievement of longer-term
financial goals and the creation of longer-term shareholder
value. In general the Company seeks to have a total compensation
package for its executive officers that is between the
50
th
and
75
th
percentiles
of compensation at comparable benchmarked companies, while at
the same time having this overall compensation package
significantly comprised of variable performance-based elements.
The Company believes this fosters a performance-driven mentality
and best serves the interests of the Company and its
stakeholders since the compensation of the Companys
executives is significantly dependent upon achievement of the
Companys financial goals and the creation of shareholder
value. Each of these compensation elements is described in
detail below.

Base
Salary

Base salaries for new executive officers are initially set at a
level the Company determines represents a competitive fixed
reward to the executive. This is done by evaluating the
responsibilities of the position being filled, the experience of
the individual being hired and the competitive marketplace for
comparable executive talent. Subsequent yearly adjustments in
base salaries are made in the event of changes in duties and
responsibilities for the executive, superior performance or lack
of competitiveness of the base salary with market compensation
offered to executives with similar responsibilities, expertise
and experience in other general industry and consumer products
companies the Company considers to be comparable with the
Company,
and/or
competitive with the Company in recruiting executives. The base
salary provides a minimum compensation which executives will
earn if they continue to perform well and remain employed with
the Company.

In addition to evaluating base salaries with respect to the
expertise, responsibility and performance of the individual
executives, the Committee generally sets executive base salaries
to be between the
50
th
and
75
th
percentiles
for comparable general industry and consumer products companies
as surveyed in Hewitt Executive Total Compensation Measurement,
prepared by Hewitt Associates, LLP, and Towers Perrins
Executive Compensation Databank. The Committee believes that
this positions the Companys base salaries at a level that,
when viewed in combination with the other elements of its
executive compensation package, allows the Company to hire,
retain and motivate talented executives. This approach also
enables the Company to keep the cost of the Companys
executive compensation at a reasonable level as compared to
other similar
and/or
competitive companies, while providing a

compensation package that is highly performance-oriented by
placing a significant portion of total executive compensation in
variable elements.

The salaries for all five of the Companys named executive
officers in fiscal 2006 are included in the Summary Compensation
Table that follows this report. Consistent with the
Companys general philosophy of only increasing executive
base salaries in the event of changes in responsibility,
particular achievements or lack of competitiveness with
benchmarked companies, Mr. Verrecchia, Mr. Nagler and
Mr. Gardner did not receive increases in base salary during
2006. On January 20, 2006, Mr. Goldner was promoted to
Chief Operating Officer of the Company, assuming significantly
greater responsibilities than he had previously held as
President of the U.S. Toys Segment. In connection with this
promotion, Mr. Goldners annualized base salary was
increased from $700,000 to $800,000. In April of 2006,
Mr. Hargreaves base salary was increased from
$475,000 to $500,000. This increase was attributable to
Mr. Hargreaves increased responsibility, associated
with the Companys compliance with increased regulatory
requirements, and from the Companys review of relevant
benchmarking information which indicated that
Mr. Hargreaves base salary was at the lower end of
the range between the
50
th
and
75
th
percentiles.

Subsequent to the end of 2006 the Company took two actions with
respect to the base salaries of named executive officers. Both
of these actions were taken in February 2007, but were made
effective as of January 1, 2007. First, in light of its
review of compensation for Chief Executive Officers at companies
deemed comparable to, or competitive with, the Company, the
Committee recommended, and the Board approved, an increase in
the base salary for Mr. Verrecchia from $1 million to
$1.2 million. Second, Mr. Hargreaves was promoted from
Senior Vice President and Chief Financial Officer to Executive
Vice President, Finance and Global Operations and Chief
Financial Officer. In connection with this promotion and the
increase in Mr. Hargreaves responsibilities, the base
salary for Mr. Hargreaves was increased from $500,000 to
$600,000.

Management
Incentive Awards

Approximately 20% of the Companys employees, including all
of the Companys executive officers, received management
incentive awards with respect to fiscal 2006. The management
incentive award is performance based, with payout of these
awards tied to the achievement of specific performance
objectives by the Company. Management incentive awards are tied
to the achievement of yearly performance targets and as such
provide short-term performance-based incentive compensation.
This is in contrast to equity awards, which although also
performance based, are designed to reward achievement of
specific performance objectives
and/or
stock
price appreciation over periods longer than one year. Management
incentive bonus awards for the Companys executive officers
were determined under two programs for fiscal 2006.

The management incentive award opportunities of
Mr. Verrecchia and Mr. Goldner were determined
pursuant to the Companys 2004 Senior Management Annual
Performance Plan (the Annual Performance Plan). The
Annual Performance Plan has been approved by the Companys
shareholders and is intended to allow for the deduction by the
Company of the bonuses paid to Mr. Verrecchia and
Mr. Goldner. The Committee established maximum awards which
could be payable to Mr. Verrecchia and Mr. Goldner
under the Annual Performance Plan in the first quarter of the
year and funding of the actual incentive payouts, following the
end of the year, under the Annual Performance Plan, was based
solely on the achievement of the objective financial metrics
established by the Committee as part of these awards. The
Committee is not able to increase the award payouts under the
Annual Performance Plan to reflect discretionary factors or
individual performance. The Committee may only exercise negative
discretion to reduce awards, to as low as 0%, that would
otherwise be payable to Mr. Verrecchia or Mr. Goldner
under the terms of the Annual Performance Plan. To the extent
that the Committee determined it was appropriate to reward
Mr. Verrecchia or Mr. Goldner for achievement of
subjective goals or individual performance, the Committee would
need to award discretionary bonuses outside of the Annual
Performance Plan. Neither Mr. Verrecchia nor
Mr. Goldner received a discretionary bonus award for fiscal
2006. By using only objective financial metrics to measure
performance, not allowing for discretion to increase awards, and
obtaining shareholder approval of the plan, incentive award
opportunities under the Annual Performance Plan can constitute
compensation for which the Company can take a tax deduction,
even if such compensation exceeds the limits set forth in
Section 162(m) of the Internal Revenue Code.

With respect to executive officers other than
Mr. Verrecchia and Mr. Goldner, management incentive
award opportunities in fiscal 2006 were determined pursuant to
the Companys 2006 Management Incentive Plan (MIP), which
is not a shareholder approved plan. However, the same corporate
performance criteria and targets that were used under the Annual
Performance Plan were used under the MIP for fiscal 2006. The
primary difference is that the Company is able to adjust actual
award payouts, either up or down, to executives under the MIP
based upon individual performance. Bonuses earned under the MIP
are subject to adjustment downward to as low as 0% and upward by
a factor of up to an additional 50%, based on individual
performance against specified individual management objectives
under the MIP.

In all cases, the bonuses for performance under the Annual
Performance Plan and the MIP for executive officers were
reviewed and approved by the Committee. The bonus for the
Companys Chief Executive Officer was also reviewed and
approved by the full Board.

The Committee established fiscal 2006 corporate and business
unit performance goals for the Company under both the Annual
Performance Plan and the MIP during the first quarter of fiscal
2006. These performance goals were based on the 2006 operating
plan and budget approved by the Companys Board.

The setting of performance goals involved both selecting the
performance metrics that would be used to evaluate bonus
eligibility and establishing the performance targets for each of
those metrics. The Committee used three performance metrics to
measure corporate performance in 2006. The three corporate
performance criteria, and their respective weights, were as
follows: (i) total net revenues (40%), (ii) operating
margin (40%) and (iii) free cash flow (20%). The Committee
selected these three performance metrics to capture the most
important aspects of the top and bottom line performance of the
Company, in the form of sales, profitability and cash
generation. Business unit performance objectives were based on
the first two of these criteria, namely total net revenues (50%)
and operating margin (50%). Free cash flow is not used as a
business unit performance objective because its computation can
only occur for the Company at the corporate level.

For Mr. Verrecchia, Mr. Goldner, Mr. Hargreaves
and Mr. Nagler, management incentive award opportunities
for 2006 were weighted 100% for corporate performance against
the three corporate performance targets listed above. For
Mr. Gardner, who had business unit responsibility, the
management incentive award opportunity was weighted 40% for
corporate performance against the three corporate targets, and
60% for business unit performance against the two business unit
targets.

In addition to establishing the performance criteria and target
performance objectives for each such criteria, in the first
quarter of 2006 the Committee also established (i) maximum
awards for the executives participating in the Annual
Performance Plan and (ii) target bonus awards and threshold
and maximum awards for each executive officer participant in the
MIP corresponding with various levels of performance against the
designated corporate and, to the extent applicable, business
unit objectives. Management incentive bonus targets
and/or
maximums were set at levels the Committee believed appropriately
rewarded the executive in question for their responsibility and
the contribution which would be required from such executive for
the Company to achieve its stated objectives. The maximum awards
for each of the named executive officers for 2006, as well as
the threshold and target awards for participants under the MIP
Plan, are included in the Grants of Plan-Based Awards table that
follows this discussion.

For Mr. Hargreaves, Mr. Nagler and Mr. Gardner,
in fiscal 2006 their management incentive award opportunities
corresponding to target performance were raised from 55% to 60%
of base salary. The increase to 60% applied to all of the
Companys executives who were grouped within the same
internal management level as Mr. Hargreaves,
Mr. Nagler and Mr. Gardner. The increase in the target
management incentive opportunity for these officers resulted
primarily from review of the benchmarking information which
demonstrated the Companys management incentive
opportunities had fallen below the low end of the reference
range of the
50
th
to
the
75
th
percentile
of incentive awards reflected in Hewitt Executive Total
Compensation Measurement and Towers Perrins Executive
Compensation Databank. Mr. Verrecchias and
Mr. Goldners management incentive award opportunities
are set only in terms of a maximum award, which award can be
reduced at the sole discretion of the Compensation Committee.

The ultimate management incentive award paid with respect to
2006 was a function of the percentage of the performance goals
achieved, with the Committee reserving the right in its sole
discretion to lower the bonus paid to

as little as 0% in the case of Mr. Verrecchia or
Mr. Goldner, and lower to as little as 0% or raise by up to
an additional 50% the award paid for other executive officers
based on their individual performances. The actual management
incentive awards paid to the five named executive officers are
included in the Non-Equity Incentive Plan Compensation column of
the Summary Compensation table which follows this discussion.
The Committee also reserves the right to grant discretionary
bonuses to executives in select cases where the executive has
performed at an exceptionally high level
and/or
has
accomplished specific extraordinary corporate or individual
objectives outside the parameters of the formal bonus plans. No
such discretionary bonuses were paid to any of the
Companys executive officers for fiscal 2006.

In order to achieve payouts under the Annual Performance Plan
and the MIP, the Company must meet performance targets for total
net revenues, operating margin and free cash flow which have
been set by the Committee at levels which it determines require
solid performance from the Company. Superior performance is
required to achieve a higher than target payout under the MIP,
or in the case of the Annual Performance Plan, to achieve
payouts toward the upper end of the spectrum of permissible
payouts. Threshold performance for each given financial metric
under the MIP is set at 80% of target performance for purposes
of the achievement of that goal contributing to payout of the
management incentive award. An 80% achievement of a performance
goal under the MIP equates to a 60% payout against that goal. As
was previously discussed, the individual performance metrics and
their levels under the Annual Performance Plan and the MIP are
taken directly from the Companys operating plan as it has
been approved by the Board.

For fiscal 2006, Mr. Verrecchia, Mr. Goldner,
Mr. Hargreaves, Mr. Nagler and Mr. Gardner were
paid management incentive bonuses in the amount of $3,000,000,
$2,000,000, $700,000, $500,000 and $581,530, respectively. The
Company considers the actual total net revenues, operating
margin and free cash flow performance targets under the Annual
Performance Plan and the MIP to be confidential financial
information which would harm the Company if they were publicly
disclosed. However, the Company can disclose that in 2006 it
significantly exceeded its performance goals under the MIP, and
that the 2006 incentive plan payouts to the named executive
officers receiving bonuses under the MIP correlated with
approximately 167% achievement of the Companys corporate
performance goals for 2006. Mr. Gardners incentive
plan payout correlated with (i) a 140% weighted achievement
of all target corporate objectives and objectives of the
Companys European business overseen by Mr. Gardner
and (ii) significant additional work Mr. Gardner
performed during 2006 as interim Chief Marketing Officer for the
Company. Over the five years ending with and including fiscal
2006, the payout under the MIP has corresponded with corporate
performance against target ranging from a low of approximately
80% of target for 2004, to a high of approximately 167% of
target for 2006. For Messrs. Verrecchia and Goldner, whose
bonuses were determined under the Annual Performance Plan, 167%
achievement of the Companys corporate performance goals
was more than sufficient to authorize payment of maximum bonuses
under that plan. The payouts actually approved by the Committee
reflected the Committees assessment of the relative
contributions of Mr. Verrecchia and Mr. Goldner in
achieving the plan performance goals.

Subsequent to the end of 2006, as part of his promotion to
Executive Vice President, Finance and Global Operations and
Chief Financial Officer, Mr. Hargreaves bonus target
for 2007 was raised from 60% to 75% of his base salary.

Long-Term
Equity Awards

Prior to fiscal 2006, the Company had granted almost all of the
equity awards to the Companys employees in the form of
non-qualified stock options, generally vesting in annual
installments over three years. These options were designed to
motivate and retain those individuals, over a period of multiple
years, who are most important to the Companys future
success. Stock options are also designed to align the interests
of employees with those of shareholders by providing employees
with a benefit from price appreciation in the Common Stock after
the date of grant and to hold employees accountable for
delivering stock price appreciation to the shareholders of the
Company.

In structuring the 2006 equity compensation program the
Committee believed it was important to retain stock options as a
significant element of the program to continue to achieve the
motivational benefits of rewarding key employees for
appreciation in the Companys stock price over the course
of multiple years. However, in light of the many market factors
that can impact an individual companys stock performance,
other than the performance of the

company itself, and the consequent imperfect connection between
a companys stock price performance and the performance of
the underlying business, as well as the accounting changes
effective in fiscal 2006 which eliminated favorable accounting
treatment for stock options and enhanced the attractiveness of
other stock compensation vehicles, the Committee felt it was
important beginning in 2006 to have a significant portion of the
value of the Companys equity compensation program tied to
achievement of specific internal financial goals for the
Company, rather than just stock price appreciation.

For fiscal 2006 the Committee approved target total equity award
values for each of the Companys eligible employees. These
targets were expressed as a percentage of each individuals
base salary. In approving target equity grant values for the
Companys various employees, the Committee reviewed market
data with respect to equity compensation levels, and the award
vehicles being used, at comparable and competitive companies.
After reviewing this market data the Company determined that it
was appropriate to set its equity award targets for both its
executive officers, and its other employees who are eligible to
receive equity awards, at approximately the
60
th
percentile
of award values at comparable companies, as set forth in the
Mercer Wall Street Journal 350 and Tower Perrins Executive
Compensation Databank. This target value of total equity awards
was intended to make the total executive compensation package
more performance based, and to reflect that, beginning in fiscal
2006, the Company required its most senior executive officers to
execute non-compete agreements in order to be eligible to
receive equity awards. Among the named executive officers, this
resulted in Mr. Hargreaves and Mr. Nagler signing
non-compete agreements. Mr. Verrecchia and Mr. Goldner
were already subject to non-competition obligations pursuant to
their pre-existing employment agreements.

In all cases the final target equity award values were set at
levels the Committee believed would compensate the individual
for future achievement of the Companys long-term financial
goals and stock price appreciation in a manner commensurate with
their duties and contributions to the performance of the Company
and its stock. As is the case with management incentive plan
awards, the performance metrics are designed to reward Company
performance, as opposed to individual performance.

The target equity award value for each eligible employee was
then divided evenly between two award types, non-qualified stock
options and performance share awards, such that 50% of the total
equity award value would be represented by each type of award.
This even division of the award value reflected the
Committees belief that over the performance period the
realization of equity award values should be equally divided
between achievement of the Companys longer-term internal
financial targets and the Companys stock price
appreciation.

For the 50% of the equity award value in 2006 which was made in
the form of stock performance awards, these awards provide the
recipient with the potential to earn shares of the
Companys common stock based on the Companys
achievement of stated cumulative diluted earnings per share
(EPS) and cumulative net revenue
(Revenue) targets over a ten quarter period
beginning July 3, 2006 and ending December 28, 2008
(the Performance Period). The cumulative net revenue
and diluted earnings per share targets were taken from the
Companys long-term strategic plan and, as is the case with
the performance levels under the Annual Performance Plan and the
MIP, were set at levels which the Committee determined would
require solid performance from the Company, and in turn its
executives, in order to achieve a threshold payout, and superior
performance to achieve a higher than target payout.

The Companys considers the specific target EPS and
Revenues levels to be confidential information which would harm
the Company if it were disclosed. However, the targets are based
on the same Board approved operating plan which is used in
setting performance targets under the Annual Performance Plan
and MIP. As such, to get a sense of the Companys
performance against targets in the recent past, over the five
years ending with and including fiscal 2006, the payout under
the MIP has corresponded with corporate performance against
target ranging from a low of approximately 80% of target for
2004, to a high of approximately 167% of target for 2006. 90%
achievement of each target under the contingent stock
performance awards was established as a threshold to that metric
contributing to the ultimate award payout. Each stock
performance award has a target number of shares of common stock,
a portion of which may be earned by the recipient if the Company
achieves at least 90% of the stated EPS
and/or
Revenue targets over the Performance Period. 90% achievement of
both of the performance metrics corresponds with a planned
payout of 85% of the target number of shares. The actual number
of shares to be received at the end of the Performance Period
can be below or above the target number based on the actual
levels of

the target performance achieved against the two metrics. In all
cases the Committee retains the right to reduce the number of
actual shares received pursuant to any award to any level,
including 0%, to the extent it believes the actual payout should
be below the number called for by the award agreements.

In determining the 2006 equity award targets the Committee did
not feel that past equity awards should have a significant
impact. However, in conjunction with the Companys stock
ownership guidelines, which are described below, the Committee
has begun reviewing each officers progress in achieving
their targeted stock ownership level as a criterion in
establishing future target equity grant levels. To the extent
that an officer is not making sufficient progress toward
achieving and maintaining the targeted stock ownership level,
equity grants to that officer in the future may be reduced.

The stock option and performance share award grants to the
Companys named executive officers in 2006 are reflected in
the Grants of Plan-Based Awards table that follows this report.
The grant date of the Companys yearly options and stock
performance awards in fiscal 2006 to officers and other eligible
employees was July 27, 2006.

The Company has only infrequently used restricted stock and
deferred restricted stock units as a reward and retention
mechanism. In fiscal 2006 the only restricted stock or deferred
restricted stock unit grant made to the Companys executive
officers was a grant of 20,000 shares of restricted stock
made to Mr. Goldner in connection with his January 2006
promotion to Chief Operating Officer. This restricted stock
grant is scheduled to vest on the third anniversary of the grant
date and was designed to further align Mr. Goldners
interests with those of the Companys shareholders by
providing him with a further level of share ownership.

The Company has share ownership guidelines which apply to all
employees at or above the Senior Vice President level. The share
ownership guidelines establish target share ownership levels
which executives are expected to achieve over a five-year period
and then maintain, absent extenuating circumstances which are
approved by the Companys Human Resources Department, for
as long as they remain with the Company. The target ownership
levels are expressed as a percentage of the executives
base salary and range from 50% of yearly base salary for certain
Senior Vice Presidents to 500% of base salary for the
Companys Chief Executive Officer.

The Company does not have a set policy of always making its
yearly equity awards at a particular time of the year. Over the
last several years the Company has most frequently made its
annual equity awards in the late spring or summer. However, the
yearly awards have been made at different times in certain past
years when other circumstances made such a choice desirable. For
example, the Company made its 2003 annual equity grant in
December of 2002 so as to utilize shares available under an
equity plan which was expiring at the end of 2002. When the work
of designing the equity compensation program for a particular
year is completed and ready for final implementation, the
Committee makes the relevant annual grants. The Company does not
manage the timing of equity grants to attempt to give
participants the benefit of material non-public information.
Grants are made at times when the Company believes it is not in
possession of material non-public information and when major
subsequent announcements are not currently anticipated. Further,
all option grants are made with an exercise price at or above
the average of the high and low sales prices of the
Companys common stock on the date of grant.

In making the yearly equity grants the Committee specifically
approves the grants for every member of the Companys
senior management team, which includes every executive officer.
The Committee also approves the total equity grant pool for all
other eligible employees of the Company, with the individual
grants from that pool being made from a list prepared by the
Companys senior management which is available for the
Committees review. Other than the annual equity grants,
off-cycle equity grants are made during the year generally only
in the case of new hires or in connection with significant
promotions. All of these off-cycle grants are also reviewed and
approved by the Committee.

Executive
Benefits

In addition to receipt of salary, management incentive awards
and equity compensation, the Companys U.S. based
officers also participate in certain employee benefit programs
provided by the Company. Executive officers participate in the
Companys Pension Plan (the Pension Plan),
which is described on pages 30 and 31 of this proxy
statement, and can participate in the Companys 401(k)
Retirement Savings Plan (the 401(k) Plan) and the
Supplemental Benefit Retirement Plan (the Supplemental
Plan). The Supplemental Plan provides pension

benefits determined under the same formula as the Pension Plan
to the extent individuals are impacted by compensation and
benefits limits determined under the Code. To the extent that
the Companys matching contribution exceeds certain limits
applicable to the 401(k) Plan, which are also determined
pursuant to the Code, the excess is allocated to the executive
officers account under the Supplemental Plan. The
Supplemental Plan is intended to provide a competitive benefit
for executive officers whose employer-provided pension benefits
and retirement contributions would otherwise be limited.
However, the Supplemental Plan is designed only to provide the
benefit which the executive would have accrued under the
Companys Pension Plan and 401(k) Plan if the Code limits
had not applied. It does not further enhance those benefits.

Mr. Gardner, who is based in the U.K., is not eligible to
participate in the Pension Plan, the 401(k) Plan and the
Supplemental Plan for U.S. employees. However,
Mr. Gardner, like the Companys other employees in the
U.K., participates in the Hasbro Group Personal Pension Plan
(the Hasbro Group Plan). The Hasbro Group Plan is
described on page 30 of this proxy statement.

The amount of the Companys matching contribution to the
named executive officers under both the 401(k) Plan and the
Supplemental Plan (401(k)), for U.S. based officers, and
the Hasbro Group Plan, for Mr. Gardner, is included in the
All Other Compensation column of the Summary
Compensation Table that follows this report.

The executive officers of the Company are eligible for life
insurance benefits on the terms applicable to the Companys
other employees. In addition, Mr. Verrecchia is provided
with executive life insurance. The cost of the Companys
premiums for executive life insurance programs for
Mr. Verrecchia is included in the All Other
Compensation column of the Summary Compensation Table.

The Companys executive officers participate in the same
medical and dental benefit plans as are provided to the
Companys other employees.

Executive officers are also eligible to participate in the
Companys Non-qualified Deferred Compensation Plan, which
is available to all of the Companys employees who are in
band 40 (director level) or above. The Non-qualified Deferred
Compensation Plan allows participants to defer compensation into
various hypothetical investment vehicles, the performance of
which determines the return on compensation deferred under the
plan. Potential investment choices include the Companys
Common Stock, as well as other equity indices. Earnings on
compensation deferred by the executive officers do not exceed
the market returns on the relevant investments and are the same
as the returns earned by other non-executive officer employees
deferring compensation into the applicable investment vehicles.

The Company reimburses designated executive officers for the
cost of certain tax and financial planning services they obtain
from third parties provided that such costs are within the
limits established by the Company. The cost to the Company for
this reimbursement to the named executive officers is included
in the All Other Compensation column of the Summary
Compensation Table.

The Company conducted a comprehensive review of its pension
programs approximately four years ago. The Company currently
expects to conduct another comprehensive review of these plans
in fiscal 2007.

Change of
Control and Employment Agreements

Certain of the Companys executive officers, including all
five of the Companys named executive officers for fiscal
2006, are party to Change in Control Agreements with the
Company. In addition, Mr. Verrecchia and Mr. Goldner
are party to additional agreements with the Company governing
their employment and providing certain post-termination benefits
and payments. All of these agreements, and the payments which
the executive can receive in certain situations, are described
in detail under the caption Agreements and Arrangements
Providing Post-Employment and Change in Control Benefits
that follows this report. The Committee authorizes the Company
to enter into Change of Control or other employment related
agreements with executives only in those situations where the
Committee feels doing so is necessary to recruit
and/or
retain the most talented executives and to provide optimal
incentive to the executive in question to work to maximize the
performance of the Company and the creation of long-term value
for the Companys shareholders. The change in control
provisions in these agreements are generally double-trigger
provisions in that the executive officer receives benefits under
the agreements only if, following a change in control, the
individual executive officer is either terminated by the

Company without cause, or leaves on account of events which
qualify under the definition of good reason in the agreement.
The Company believes that double-trigger change in control
agreements are generally most appropriate in that an executive
would only be compensated in the event that the executive was no
longer employed with the Company following the change in control.

However, the Companys equity compensation plans generally
provide that equity awards (including performance share awards)
for all participants, including the Companys named
executive officers, fully vest in the event of a change in
control of the Company. The participant is entitled to receive
the value of such awards either in cash or shares of the
Companys stock, determined in the Committees
discretion, following such change in control.

EXECUTIVE
COMPENSATION

The following table summarizes compensation paid by the Company
for services rendered during fiscal 2006 by the Companys
Chief Executive Officer, Chief Financial Officer and the three
other most highly compensated executive officers of the Company
in fiscal 2006.

Mr. Gardner, who is located in the United Kingdom, was paid
part of his salary and non-equity incentive plan compensation in
British pounds and part of his salary and non-equity incentive
plan compensation, for services performed for the Companys
Swiss subsidiary, Hasbro SA, in Swiss francs. For purposes of
computing the salary and non-equity incentive plan compensation
amounts in these tables the amounts paid to Mr. Gardner in
British pounds and Swiss francs were converted into US dollars
using the same exchange rates used by the Company in determining
the expense of these payments for the Companys financial
reporting purposes.

(b)

Reflects the net accounting expense recognized by the Company
for stock and option awards to the named executive officers.
Please see note 10 to the financial statements included in
the Companys Annual Report on
Form 10-K,
for the year ended December 31, 2006, for a detailed
discussion of the assumptions used in valuing options and stock
awards.

In 2006 all five of these executives were granted non-qualified
stock options and contingent stock performance awards. The grant
date values of these awards are reflected in the Grants of
Plan-Based Awards Table which follows this table. The
effectiveness of these awards was conditioned upon the execution
of certain agreements by the executives. Subsequent to the grant
of these awards, Mr. Gardner did not execute these
agreements and as a result, the equity awards made to
Mr. Gardner in 2006 did not become effective. The value of
these 2006

awards was treated as a forfeiture in the Companys
financial statements for 2006 and no value for these awards is
reflected in the table above.

(c)

For Mr. Verrecchia and Mr. Goldner these amounts
consist entirely of the management incentive awards earned by
such executives under the Companys 2004 Senior Management
Annual Performance Plan for their performance during fiscal
2006. For Mr. Hargreaves, Mr. Nagler and
Mr. Gardner, these amounts consist entirely of the
management incentive awards earned by such executives under the
Companys 2006 Management Incentive Plan for their
performance during fiscal 2006.

(d)

The amounts reflected in this table consist entirely of the
change in pension value during fiscal 2006 for each executive.

Mr. Gardner, who is based in the U.K., is not eligible to
participate in the Companys Pension Plan which is
maintained for U.S. employees, nor is he eligible to
participate in the 401(k) Plan or the Supplemental Plan.
However, the Company does maintain the Hasbro Group Plan for its
employees in the U.K. The Hasbro Group Plan is a defined
contribution plan (as opposed to a defined benefit plan like the
Pension Plan) pursuant to which both the Company and the
employee make contributions. The Hasbro Group Plan has been in
place since February 2006. Prior to February 2006 the Company
had another defined contribution plan for its employees in the
U.K., namely the Hasbro U.K. Pension Plan.

Does not include the following amounts which were earned by the
executives on (i) compensation previously deferred by them
under the Deferred Compensation Plan and (ii) amounts
contributed by the Company to the executives account under
the Supplemental Plan (401(k)): Mr. Verrecchia, $281,302;
Mr. Goldner, $74,680, Mr. Hargreaves, $325,666, and
Mr. Nagler, $8,568. Earnings on compensation deferred by
the executive officers and on the Companys contributions
to the Supplemental Plan do not exceed the market returns on the
relevant investments which are earned by other participants
selecting the same investment options.

(e)

Includes the following amounts paid by the Company for each
named executive officer in connection with a program whereby
certain financial planning and tax preparation services provided
to the individual are paid for by the Company:
Mr. Verrecchia, $9,500; Mr. Goldner, $0,
Mr. Hargreaves, $5,000, Mr. Nagler, $0 and
Mr. Gardner, $3,910.

Includes the Companys matching contribution to the savings
account of each individual under the 401(k) Plan and the
Supplemental Plan, such amounts as follows: Mr Verrecchia,
$150,000; Mr. Goldner, $101,590, Mr. Hargreaves,
$50,654, and Mr. Nagler, $46,500. These amounts are in part
contributed to the individuals account in the 401(k) Plan
and, to the extent in excess of certain Code maximums, deemed
allocated to the individuals account in the Supplemental
Plan (401(k)).

Also includes $2,536 in premiums paid by the Company for an
individual life insurance policy for Mr. Verrecchia and
$24,942 paid to Mr. Gardner in lieu of providing a Company
car and a fuel allowance.

Also includes the following amount which was contributed by the
Company to the Hasbro U.K. Pension Plan (for January
2006) and the Hasbro Group Plan (for February through
December of 2006) on behalf of Mr. Gardner: $40,986.

Effective March 31, 2007, Mr. Gardner ceased to
perform services for the Company and went on U.K. garden leave.
Mr. Gardner will continue to be paid his salary and will
continue to receive applicable employee benefits through
November 30, 2007 (the Termination Date),
during which time Mr. Gardner will remain available to
answer questions from the Company and to provide necessary
assistance to the Company. Please see the description of
Mr. Gardners Transition Agreement which appears on
page 43 of this proxy statement.

The following table sets forth certain information regarding
grants of plan-based awards for fiscal 2006 to the named
executive officers.

Grants of
Plan-Based Awards

All

All Other

Other

Option

Closing

Grant

Stock

Awards:

Market

Date Fair

Estimated Future Payouts

Estimated Future Payouts

Awards:

Number of

Exercise

Price

Value of

Under Non-Equity

Under Equity

Number

Shares

Price of

on the

Stock and

Incentive Plan Awards

Incentive Plan Awards

of

Underlying

Option

Date of

Option

Name

Grant Date

Threshold

Target

Maximum

Threshold

Target

Maximum

Shares

Options

Awards

Grant

Awards(e)

Alfred J. Verrecchia

2/16/06

(a)

$

3,000,000

7/27/06

(b)

55,218

110,436

138,045

$

2,077,853

7/27/06

(c)

453,515

$

18.815

$

18.60

2,000,001

Brian Goldner

1/20/06

(d)

20,000

422,000

2/16/06

(a)

2,383,848

7/27/06

(b)

22,088

44,175

55,219

831,153

7/27/06

(c)

181,406

18.815

18.60

800,000

David D.R. Hargreaves

2/16/06

(a)

$

177,293

$

296,539

889,617

7/27/06

(b)

10,354

20,707

25,884

389,602

7/27/06

(c)

85,034

18.815

18.60

375,000

Barry Nagler

2/16/06

(a)

171,000

285,000

855,000

7/27/06

(b)

9,836

19,671

24,589

370,110

7/27/06

(c)

80,782

18.815

18.60

356,249

Simon Gardner

2/16/06

(a)

187,664

312,773

938,320

7/27/06

(b)(f)

10,446

20,891

26,114

393,064

7/27/06

(c)(f)

85,791

18.815

18.60

378,338

(a)

For Mr. Verrecchia and Mr. Goldner these management
incentive awards were made pursuant to the Companys 2004
Senior Management Annual Performance Plan. For
Mr. Hargreaves, Mr. Nagler and Mr. Gardner these
management incentive plan awards were made pursuant to the
Companys 2006 Management Incentive Plan.

(b)

All of these contingent stock performance awards were granted
pursuant to the Companys 2003 Stock Incentive Performance
Plan (the 2003 Plan). These awards provide the
recipients with the ability to earn shares of the Companys
Common Stock based on the Companys achievement of stated
cumulative diluted earnings per share (EPS) and
cumulative net revenue (Revenues) targets over a ten
quarter period beginning July 3, 2006 and ending
December 28, 2008 (the Performance Period).
Each stock performance award has a target number of shares of
Common Stock associated with such award which may be earned by
the recipient if the Company achieves the stated EPS and
Revenues targets set for the Performance Period. Upon a Change
of Control, as defined in the 2003 Plan, all stock performance
awards will be canceled in exchange for payment in the amount of
the product of the highest price paid for a share of Common
Stock in the transaction or series of transactions pursuant to
which the Change of Control shall have occurred or, if higher,
the highest reported sales price of a share of Common Stock
during the
sixty-day
period immediately preceding the date of the Change of Control,
and the target number of shares applicable to the award. This
payment will be made in cash or shares of Common Stock, or a
combination thereof, in the discretion of the Compensation
Committee.

(c)

All of these options were granted pursuant to the 2003 Plan.
These options are non-qualified, were granted with an exercise
price equal to the average of the high and low sales prices of
the Companys common stock on the date of grant, and vest
in equal annual installments over the first three anniversaries
of the date of grant. All options become fully vested in the
event of death, disability or retirement at the optionees
normal retirement date and are exercisable for a period of one
year from the date of such disability or retirement, or in the
case of death, from the appointment and qualification of the
executor, administrator or trustee for the optionees
estate. An optionee taking early retirement may, under certain
circumstances, exercise all or a portion of the options unvested
at his or her early retirement date and may exercise such
options for three months or such longer period as the
Compensation Committee may approve. Unless otherwise approved by
the Compensation Committee in its discretion, upon termination
of employment for any other reason, only options vested at the
date of the termination may be exercised, and are exercisable
for a period of three months following termination.

Upon a Change of Control, as defined in the 2003 Plan, all
options become immediately exercisable and will be canceled in
exchange for payment in the amount of the difference between the
highest price paid for a share of Common Stock in the
transaction or series of transactions pursuant to which the
Change of Control shall have

occurred or, if higher, the highest reported sales price of a
share of Common Stock during the
sixty-day
period immediately preceding the date of the Change of Control,
and the exercise price of such options. This payment will be
made in cash or shares of Common Stock, or a combination
thereof, in the discretion of the Compensation Committee.
Participants may exercise options and satisfy tax withholding
liabilities by payments in cash or by delivery of Common Stock
equal to the exercise price and the tax withholding liability.
In addition, participants may instruct the Company to withhold
shares issuable upon exercise in satisfaction of tax withholding
liability.

(d)

These restricted shares were granted in connection with the
promotion of Mr. Goldner to Chief Operating Officer, were
granted pursuant to the 2003 Plan and vest in one installment on
the third anniversary of the date of grant, subject to
Mr. Goldners continued employment with the Company.
Upon a Change in Control the shares vest fully and will be
canceled in exchange for payment in the amount of the product of
the highest price paid for a share of Common Stock in the
transaction or series of transactions pursuant to which the
Change of Control shall have occurred or, if higher, the highest
reported sales price of a share of Common Stock during the
sixty-day
period immediately preceding the date of the Change of Control,
and the number of shares covered by the award. This payment will
be made in cash or shares of Common Stock, or a combination
thereof, in the discretion of the Compensation Committee.

(e)

The Grant Date Present Values for options were determined using
the standard application of the Black-Scholes option pricing
methodology using the following weighted average assumptions:
volatility 23.4%, dividend yield 2.55% and a risk free interest
rate of 4.98% based on the options being outstanding for
approximately five and a half years. The Grant Date Present
Values do not take into account risk factors such as
non-transferability and limits on exercisability. In assessing
the Grant Date Present Values indicated in the above table, it
should be kept in mind that no matter what theoretical value is
placed on an option on the date of grant, the ultimate value of
the option is dependent on the market value of the Common Stock
at a future date, and the extent if any, by which such market
value exceeds the exercise price on the date of exercise. The
grant date fair value for the shares of restricted stock granted
to Mr. Goldner was based on the average of the high and low
trading prices on the date of grant, which was $21.355 per
share, and the grant date fair values for the contingent stock
performance awards were based on the average of the high and low
trading prices on the date of grant of these awards, which was
$18.815 per share.

Please see note 10 to the financial statements included in
the Companys Annual Report on
Form 10-K,
for the year ended December 31, 2006, for a detailed
discussion of the assumptions used in valuing these options and
stock awards.

(f)

In 2006 all five of these executives were granted non-qualified
stock options and contingent stock performance awards. The grant
date values of these awards are reflected in the Grants of
Plan-Based Awards Table above. However, the effectiveness of
these awards was conditioned upon the execution of certain
agreements by the executives. Subsequent to the grant of these
awards, Mr. Gardner did not execute these agreements and as
a result, the equity awards made to Mr. Gardner in 2006
which are reflected in the table above did not become effective.
The value of these awards was treated as a forfeiture in the
Companys financial statements for 2006.

These contingent stock performance awards are reflected at the
target number of shares for such awards, even though the
performance period will not end until December 31, 2008 and
there is no assurance that the target amounts, or even the
threshold amounts, will be earned under these awards.

(b)

These amounts were computed by multiplying the target number of
shares by the closing share price of $27.25 on December 29,
2006, the last trading day of the Companys 2006 fiscal
year.

(c)

These unexercisable options will vest on April 25, 2007,
subject to the optionee remaining employed with the Company
through that date.

(d)

These unexercisable options will vest on May 20, 2007,
subject to the optionee remaining employed with the Company
through that date.

(e)

One half of these unexercisable options will vest on each of
May 19, 2007 and May 19, 2008, subject to the optionee
remaining employed with the Company through those dates.

(f)

One third of these unexercisable options will vest on each of
July 27, 2007, July 27, 2008 and July 27, 2009,
subject to the optionee remaining employed with the Company
through those dates.

(g)

All of these restricted shares will vest on January 20,
2009, subject to Mr. Goldner remaining employed with the
Company through that date.

The following table sets forth information concerning aggregate
option exercises and vesting of restricted stock during the 2006
fiscal year for the named executive officers.

Option
Exercises and Stock Vested

Option Awards

Number of

Stock Awards

Shares

Shares

Acquired on

Value Realized

Acquired

Value Realized

Exercise

on Exercise

on Vesting

on Vesting

Name

(#)

($)

(#)

($)

Alfred J. Verrecchia

56,250

$

281,154



$



Brian Goldner



$





$



David D.R. Hargreaves

199,375

$

2,357,699



$



Barry Nagler



$





$



Simon Gardner

248,750

$

2,779,609



$



* * *

The following table sets forth information regarding each of the
named executive officers years of credited service and
accrued pension benefits with the Company under plans providing
specified retirement payments and benefits, including
tax-qualified defined benefit plans and supplemental executive
retirement plans, but excluding tax-qualified defined
contribution plans and non-qualified defined contribution plans.
Information is provided as of the plans measurement dates
used for financial reporting purposes for the Companys
2006 fiscal year.

Pension
Benefits

Present Value of

Number of

Accrued Benefit

Years of

Payable at Normal

Payments During

Credited

Retirement

the Last Fiscal

Name

Plan Name

Service

($)(a)

Year($)

Alfred J. Verrecchia

Pension Plan

41.0

$

766,461

$

0

Supplemental Plan

41.0

$

8,175,263

$

0

Post-Employment Agreement

41.0

$

3,343,233

$

0

Brian Goldner

Pension Plan

7.0

$

73,423

$

0

Supplemental Plan

7.0

$

390,500

$

0

David D.R. Hargreaves

Pension Plan

14.0

$

243,642

$

0

Supplemental Plan

14.0

$

769,150

$

0

Expatriate Plan

24.0

$

463,423

$

0

Barry Nagler

Pension Plan

7.0

$

103,648

$

0

Supplemental Plan

7.0

$

313,120

$

0

Simon Gardner

(b)







(a)

The Present Value of Accrued Benefit is the lump-sum
value as of September 30, 2006 of the annual pension
benefit earned as of September 30, 2006 payable under a
plan for the executives life beginning on the date in
which the named executive officer may commence an unreduced
pension under the respective plan, reflecting current credited
service, current five-year average compensation, and current
statutory benefit and pay limits as applicable. Certain
assumptions were used to determine the lump-sum values and are
outlined below. These assumptions are consistent with those used
for financial statement purposes under FAS 87, except that
the named executive officer is assumed to continue to be
employed until the assumed retirement age (i.e., there will be
no assumed termination for any reason, including death or
disability). The assumptions are as follows: (i) the
FAS 87 measurement date is September 30, 2006,
(ii) it is assumed that 65% of participants will elect a
lump sum payment and 35% will elect an annuity under the Pension
Plan and the Supplemental Plan, and that Mr. Verrecchia and
Mr. Hargreaves will elect an annuity for any benefits
provided under the Post-Employment Agreement and Expatriate
Plan, respectively, (iii) the discount rate is assumed to
be 5.75%, (iv) the lump sum

interest rate is assumed to be 5.50%, (v) for mortality
(post-commencement) the RP-2000 mortality tables are used with
separate rates for males and females for benefits paid as
annuities and the IRS table promulgated in Revenue Ruling
2001-62
for
benefits paid as lump sums, (vi) the earliest unreduced
retirement age is age 65 for the plans prior to the
January 1, 2000 amendment, and age 55 for the plans
following such amendment and (vii) all values are estimates
only; actual benefits will be based on data, pay and service at
the time of retirement. Mr. Verrecchia is currently
eligible for an unreduced retirement benefit.

(b)

Mr. Gardner, who is based in the U.K., is not eligible to
participate in the Pension Plan which is maintained for
U.S. employees, nor is he eligible to participate in the
401(k) Plan or the Supplemental Plan. However, the Company does
maintain the Hasbro Group Plan for its employees in the U.K. The
Hasbro Group Plan is a defined contribution plan pursuant to
which both the Company and the employee make contributions.

Description
of Pension Plans

The Company sponsors the Hasbro, Inc. Pension Plan (the
Pension Plan) and the Supplemental Benefit
Retirement Plan (the Supplemental Plan) for its
U.S. employees. The Pension Plan provides funded,
tax-qualified benefits subject to the limits on compensation and
benefits applicable under the Internal Revenue Code. All of the
named executive officers, except Mr. Gardner, participate
in the Pension and Supplemental Plan. Mr. Verrecchia is
also eligible for an additional non-qualified retirement benefit
under his Post-Employment Agreement (the Post-Employment
Agreement), which is described in detail in the Employment
Agreements section of this proxy statement. As a result of his
service while in the U.K., Mr. Hargreaves accrued a benefit
under the Companys former U.K. Employee Benefits Plan (the
U.K. Plan) and the Hasbro International Expatriate
Pension Plan (the Expatriate Plan). The U.K. Plan
was closed in 1994 and the accrued benefits under the U.K. Plan
were transferred to Legal and General. The Company no longer has
any obligation to pay those benefits. Mr. Hargreaves is,
however, entitled to an annuity benefit from Legal and General
relating back to the closed U.K. Plan. The Pension Plan,
Supplemental Plan, Post-Employment Agreement, former U.K. Plan
annuity benefit and Expatriate Plan are described in more detail
below.

The Company does not have a policy of granting any additional
years of benefit service beyond the definition of benefit
service within the plans identified above. A year of benefit
service is earned for each year in which an employee completes
at least 1000 hours of service for the Company.

The Company maintains the Hasbro Group Personal Pension Plan
(the Hasbro Group Plan) for its employees in the
U.K. Mr. Gardner participates in the Hasbro Group Plan. The
Hasbro Group Plan is a defined contribution plan pursuant to
which both the Company and the employee make contributions to a
plan administered by a third party. Participants in the Hasbro
Group Plan choose their own investment options from those
provided by the third party administrator. The Company
contribution rate under the Hasbro Group Plan is 7.7% of an
employees salary, provided that the employee makes a
minimum contribution of 2.9% of salary. The value of the
Companys contributions to the Hasbro Group Plan, and the
former Hasbro U.K. Pension Plan, which was also a defined
contribution plan, on behalf of Mr. Gardner in 2006 is
included in the All Other Compensation column of the
Summary Compensation Table. An employees balance in the
Hasbro Group Plan is fully vested.

Pension
Plan

Effective January 1, 2000, the Company amended the Pension
Plan as part of an overall redesign of its retirement programs.
The January 1, 2000 amendments to the Pension Plan
implemented a number of changes. Among the significant changes,
the amendments to the Pension Plan provided for a lump sum
benefit or an annual benefit, both determined primarily on the
basis of average compensation and actual years of service
(previously years of service in excess of 30 years were
excluded). Another aspect of the amendments made the benefits
under the Pension Plan portable after five years of service with
the Company.

Until January 1, 2007, employees working for the Company at
the time of the January 1, 2000 amendments received the
greater of the benefit provided by the unamended plan and the
benefit provided by the amended plan. For such employees
retiring on or after January 1, 2007, to compute their
benefits the Company determines what the employees
benefits would have been under the Pension Plan, prior to the
amendment, as of December 31, 2006. If the benefits under
the Pension Plan, prior to the amendment, are higher than the
benefits provided for such

employee under the Pension Plan following the amendment, the
employees pension benefits are computed by adding the
benefits accrued under the unamended plan, as of
December 31, 2006, to the benefits accrued under the plan,
as amended, for periods of service after January 1, 2007.
For employees joining the Company after January 1, 2000,
benefits will only be computed with respect to the Pension Plan
as amended. Mr. Goldner and Mr. Nagler were hired
after January 1, 2000 and, therefore, are covered only by
the amended Pension Plan.

Prior to the January 1, 2000 amendment the annual annuity
under the Pension Plan was computed as follows:
(I) (A) 50% of the persons five-year average
compensation was reduced by (B) X% of the lesser of
(i) the persons three-year average compensation and
(ii) the persons social security covered
compensation, and (II) the resulting amount was then
multiplied by the ratio of years of benefit service (not to
exceed 30) over 30. For purposes of computing benefits in
this formula X equals: (i) 22.5 if the social security
retirement age is 65, (ii) 21.0 if the social security
retirement age is 66 and (iii) 19.5 if the social security
retirement age is 67.

If benefits commenced prior to age 65, (A) and
(B) above were adjusted separately for early commencement
as follows: (A) is reduced by 4% per year until
age 50 and on an actuarially equivalent basis thereafter
and (B) is reduced
5/9
th
of
1% for the first 60 months commencement precedes social
security retirement age and
5/18
th
of
1% for the next 60 months. Thereafter, (B) is reduced
on a actuarially equivalent basis. In all cases, X above equals
22.5% for early commencement of benefits.

Following the January 1, 2000 amendment annual annuity
benefits under the Pension Plan are computed as follows:
(I) (A) 2/3 of 1% of the persons five-year
average compensation is added to (B) 1/3 of 1% of the
persons five-year average compensation in excess of the
social security taxable wage base and the resulting amount is
multiplied by (II) the persons years of benefit
service. Under the amended plan, benefits commencing prior to
age 55 are reduced
1/4
th
of
1% for each month commencement precedes age 55, with a
maximum reduction of 75%.

For purposes of the computations set forth above under the
Pension Plan, five-year average compensation equals
the highest consecutive five years of compensation during the
last ten years, while three-year average
compensation equals the three most recent years during the
same five-year period. Compensation includes salary, non-equity
incentive plan payments and any additional cash bonus (in the
year paid) as well as tax-qualified elective deferrals and
excludes equity based compensation, sign-on or retention bonuses
and other forms of non-cash compensation that may be taxable to
the executive. Compensation is subject to the maximum limits
imposed under the Code (which is $220,000 for 2006).

Participants may elect to receive benefits as a lump sum payment
or one of the annuity forms of payment available under the
Pension Plan. Because the plan provides for a lump sum payment,
benefits may commence at any age after termination, once vested
(generally after five years of benefit service). For early
commencement, the comparison of benefits under the amended and
unamended formulae is determined based on the reduced benefit
under each formula at the commencement age.

Supplemental
Plan(Pension)

The Supplemental Plan provides benefits determined under the
same benefit formula as the Pension Plan, but without regard to
the compensation and benefit limits imposed by the Code. For
determination of Supplemental Plan benefits, compensation
deferred into the Non-qualified Deferred Compensation Plan is
included in the year of deferral. Benefits under the
Supplemental Plan are reduced by benefits payable under the
Pension Plan. The Supplemental Plan benefits are not
tax-qualified and are unfunded.

Post-Employment
Agreement With Mr. Verrecchia

Unless Mr. Verrecchias employment is terminated by
the Company for Cause (as defined in the Post-Employment
Agreement), Mr. Verrecchia shall receive annuity payments
in monthly installments following the termination of his
employment for the remainder of his life in an annual amount
equal to 1.5% of his five-year average compensation multiplied
by Mr. Verrecchias years of service with the Company,
but not to exceed 60% of his five-year average compensation.
This enhanced retirement benefit is reduced by the pension
benefits provided to Mr. Verrecchia by the Pension Plan and
Supplemental Plan. If Mr. Verrecchias employment
terminates due to his death, his spouse is entitled to the
actuarial equivalent of the enhanced retirement benefits
described above. The

benefit under his agreement may also be paid as a lump sum or
other annuity forms of payment available under the Supplemental
Plan. Mr. Verrecchia is currently eligible for an unreduced
retirement benefit under his Post-Employment Agreement.

U.K.
Employee Benefits Plan

As a result of his service while in the U.K.,
Mr. Hargreaves accrued a benefit under the Companys
former U.K. Employee Benefits Plan (the U.K. Plan)
and the Hasbro International Expatriate Pension Plan (the
Expatriate Plan). The U.K. Plan was closed in 1994
and an annuity was purchased from Legal and General to provide
the accrued benefits under the U.K. Plan. The Company no longer
has any obligation to pay those benefits. Mr. Hargreaves
is, however, entitled to the annuity benefit from Legal and
General relating back to the closed U.K. Plan. The annual single
straight-life annuity benefit earned by Mr. Hargreaves
under the U.K. Plan as of the date his participation in the U.K.
Plan ceased was 9,617 British pounds. This annuity amount is
adjusted each year for inflation.

Expatriate
Plan

Mr. Hargreaves is entitled to a defined benefit from the
Hasbro International Expatriate Plan (the Expatriate
Plan) which considers his services while in the U.K. For
benefit service prior to 2006, the single straight-life annuity
benefit under the Expatriate Plan was determined as follows:
(I) (A) 2% of five-year average compensation minus
1.667% of the estimated social security benefit multiplied by
(B) years of benefit service to a maximum of 30 years,
with such benefits then being reduced by (II) the benefits
payable from the (i) former U.K. Plan sponsored by Hasbro
(which benefits are now being provided by Legal and General as a
result of the buyout of deferred pensioners), (ii) Pension
Plan, (iii) Supplemental Plan (pension benefits),
(iv) the annuity equivalent of benefits attributable to the
prior qualified and nonqualified plans, such as the Profit
Sharing Plans and, for periods after 1999, (v) the 401(k)
Plan. For benefit service after 2006, benefit accruals under the
Expatriate Plan are calculated based on the amended Pension Plan
and Supplemental Plan provisions described previously. As a
minimum, the Expatriate Plan provides a benefit based on the
amended Pension and Supplemental Plan provisions counting all
years of benefit service, including employment in the UK, with
such benefits being reduced by (i), (ii) and
(iii) above. Commencement of benefits prior to normal
retirement at age 65 and other payment options will reduce
benefits under the Expatriate Plan.

The following table provides information with respect to fiscal
2006 for each of the named executive officers regarding defined
contribution plans and other plans which provide for the
deferral of compensation on a basis that is not tax-qualified.

Non-Qualified Deferred Compensation

Executive

Contribution in

Registrant

Aggregate

Aggregate

Last Fiscal

Contributions in

Earnings in Last

Withdrawals/

Aggregate Balance at

Year

Last Fiscal Year

Fiscal Year

Distributions

Last Fiscal Year End

Name

($)(a)

($)(a)

($)

($)

($)(b)

Alfred J. Verrecchia

$

23,671

$

136,800

$

281,302

$



$

3,034,423

Brian Goldner

$



$

88,390

$

74,680

$

111,214

(c)

$

778,282

David D.R. Hargreaves

$

194,746

$

37,454

$

325,666

$



$

2,707,405

Barry Nagler

$



$

33,300

$

8,568

$



$

223,022

Simon Gardner(d)







$



$



(a)

Both the executive and registrant contributions above are also
disclosed in the preceding Summary Compensation Table as either
salary, non-equity incentive plan compensation or under all
other compensation, as applicable. Registrant contributions
earned during 2006 but credited to the account during 2007, as
well as executive contributions on amounts earned during 2006,
but paid in 2007, are included in the table above.

(b)

Includes registrant and executive contributions on amounts
earned during 2006 but credited during 2007. In addition to the
amounts contributed for 2006, the amounts below were reported as
compensation in prior Summary Compensation Tables
(Mr. Verrecchia has been a named executive officer since
the Non-qualified

Deferred Compensation Plan has been in place, and
Mr. Goldner and Mr. Hargreaves have had their
compensation for fiscal 2000 forward reported as named executive
officers in the Companys previous proxy statements).

Alfred J. Verrecchia

$

1,691,688

Brian Goldner

$

550,650

David D.R. Hargreaves

$

1,166,556

(c)

Based on a one-time election, Mr. Goldner elected to
receive distribution of the vested portion of his 2004 deferred
bonus and related earnings.

(d)

Mr. Gardner does not participate in the Companys
Non-qualified Deferred Compensation Plan.

* * * *

Amounts included in the Non-qualified Deferred
Compensation table above consist of executive deferrals
and registrant contributions under the Supplemental Plan and the
Non-qualified Deferred Compensation Plan, each of which are
described below.

Supplemental
Plan (401(k))

Each of the named executive officers, except Simon Gardner,
participates in the Supplemental Plan. All registrant
contributions reflected in the preceding table were allocated to
the Supplemental Plan. Elective deferrals are not permitted
under the Supplemental Plan. Investment earnings are credited to
the individual account based on the return on one-year treasury
bills. Contributions are fully vested at all times, however
remaining benefits are subject to forfeiture for violations of
non-competition or confidentiality obligations or for
termination due to certain criminal acts involving Company
property. Benefits under the Supplemental Plan are payable as a
lump sum upon termination of employment (including retirement
and death), subject to a six-month waiting period under Code
Section 409A, as applicable.

Non-qualified
Deferred Compensation Plan

The Companys Non-qualified Deferred Compensation Program
is available to all of the Companys employees who are in
band 40 (director level) or above, including the named executive
officers. Participants may defer up to 75% of their base salary
and 85% of the awards they are paid under the Companys
non-equity incentive plans. Participant account balances are
credited with earnings based on the participants selection
from the list of hypothetical investments below. The allocation
of hypothetical investments may be changed as often as daily,
with the exception of the Company Stock Fund. Selection of the
Company Stock Fund is made once per year and becomes effective
the following January. Rates of return earned by the named
executive officers are the same as the rates of return earned by
other participants selecting the same investment choices and are
set forth in the table below for fiscal 2006. As such, the
Company does not consider these rates of return to be
above-market within the meaning of the rules of the
United States Securities and Exchange Commission.

Rate of

Rate of

Return

Return

Investment

for 2006

Investment

for 2006

Money Market

4.87%

Growth I

6.85%

Income

4.20%

Growth II

11.72%

Growth & Income

20.19%

International

21.81%

Index 500

15.73%

Hasbro Phantom Stock

Approximates the rate of return on
the Companys common stock

Generally, account balances under the plan may be paid as a lump
sum or in installments over a five, ten or fifteen-year period
following the termination of employment, except amounts
designated as short-term payouts which are payable at a
pre-selected date in the future. Account balances may be
distributed prior to retirement in the event of a financial
hardship, but not in excess of the amount needed to meet the
hardship.

Potential
Payments Upon Termination or Change in Control; Employment
Agreements

The following tables provide information as to the value of
incremental payments and other benefits that would have been
received by the named executive officers upon a termination of
their employment with the Company due to various types of
situations, or upon a change in control of the Company, assuming
such termination
and/or
change in control had taken place on December 29, 2006 (the
last business day of the Companys 2006 fiscal year). The
benefits reflect the closing price of the Companys Common
Stock of $27.25 on December 29, 2006, where appropriate,
except that in the case of a Change in Control, the benefits
reflect a price of $27.69 per share (which was the highest
price during the sixty days prior to December 29, 2006, as
computed in accordance with the Companys equity
compensation plans). Following these tables is a narrative
description of the plans and agreements pursuant to which these
payments and benefits are payable.

In addition to the benefits detailed in the following tables,
the named executive officers are eligible to receive vested
benefits under the Companys pension plans and deferred
compensation plans, to the extent applicable, which are
quantified in the preceding tables in this proxy statement, as
well as benefits under stock options held by such executive
officers which are vested and exercisable as of the date of
their termination. In addition, the named executive officers are
eligible to participate in the Companys post-retirement
medical program, which is available to all salaried employees
and provides post-retirement life insurance and access to health
coverage funded by the retiree at the same rates as an active
employee.

Alfred
J. Verrecchia

Involuntary

Involuntary

Without

w/out

Cause or for

Cause /

Good

Mutual

Voluntary

Reason(w/

Voluntary

Involuntary

for Good Reason

Change in

Resignation

for Cause

(a)

Control)(b)

Disability

Death

Retirement

Cash Severance

Base Salary

$

1,500,000

$

0

$

2,750,000

$

2,684,895

$

1,500,000

$

0

$

0

Bonus

$

1,950,000

$

0

$

3,575,000

$

3,900,000

$

1,950,000

$

0

$

0

Target Bonus for 2006

$

0

$

0

$

0

$

1,300,000

$

0

$

0

N/A

Total Cash Severance

$

3,450,000

$

0

$

6,325,000

$

7,884,895

$

3,450,000

$

0

$

0

Benefits &
Perquisites

Pension(c)

$

1,742,333

$

0

(d)

$

1,742,333

$

4,929,133

$

1,742,333

$

67,086

$

1,742,333

Health and Welfare Benefits

$

21,218

$

0

$

38,899

$

42,435

$

21,218

$

0

$

0

Outplacement

$

0

$

0

$

0

$

0

$

0

$

0

$

0

Total Benefits &
Perquisites

$

1,763,551

$

0

$

1,781,232

$

4,971,568

$

1,763,551

$

67,086

$

1,742,333

280G Tax
Gross-Up(b)

N/A

N/A

N/A

$

8,180,498

N/A

N/A

N/A

Long-Term
Incentives

Gain on Accelerated Stock Options

$

0

$

0

$

0

$

6,955,326

$

6,590,047

$

6,590,047

$

0

Value of Accelerated Performance
Shares

$

0

$

0

$

0

$

3,057,973

$

591,955

(e)

$

591,955

(e)

$

591,955

(e)

Total Value of Accelerated
Equity Grants

$

0

$

0

$

0

$

10,013,299

$

7,182,002

$

7,182,002

$

591,955

Total Value: Incremental
Benefits

$

5,213,551

$

0

$

8,106,232

$

31,050,260

$

12,395,553

$

7,249,088

$

2,334,288

(a)

As of December 29, 2006, Mr. Verrecchia was eligible
for 33 months of severance benefits under the terms of his
post-employment agreement in the event of a termination without
cause or for good reason.

(b)

In the event of a Change in Control and no termination of
employment, only the long-term incentive values would be payable
to the executive and would not result in excise tax under
Section 4999 of the Code.

(c)

The incremental amounts shown are in addition to the amounts
disclosed in the Pension Benefits table and, with the exception
of the CIC enhancement, result solely from differences in timing
and form of payment. The incremental values assume that all
benefits are paid as a one-time lump sum and reflect interest
and mortality

assumptions under the Companys Pension Plan and include a
5% interest rate, whereas the Pension Plan table reflects
long-term assumptions used for financial statement purposes.

(d)

In the case of a termination for Cause, non-qualified benefits
under the Supplemental Plan and Mr. Verrecchias
post-employment agreement, including both pension and deferred
compensation, are subject to forfeiture.

(e)

For purposes of these calculations the target number of shares
is pro-rated for the portion of the performance period completed
as of December 29, 2006.

Brian
Goldner

Involuntary

Involuntary

Without

w/out

Cause or for

Cause /

Good Reason

Voluntary

Involuntary

Voluntary

(w/ Change in

Resignation

for Cause

for Good Reason

Control)(a)

Disability

Death

Retirement

Cash Severance

Base Salary

$

0

$

0

$

1,600,000

$

1,832,665

$

0

$

0

N/A

Bonus

$

0

$

0

$

1,360,000

$

2,040,000

$

0

$

0

N/A

Target Bonus for 2006

$

0

$

0

$

0

$

680,000

$

0

$

0

N/A

Total Cash Severance

$

0

$

0

$

2,960,000

$

4,552,665

$

0

$

0

N/A

Benefits &
Perquisites

Pension(b)

$

93,712

$

0

(c)

$

93,712

$

1,150,102

$

93,712

$

0

N/A

Deferred Compensation(d)

$

0

$

0

(c)

$

118,228

$

118,228

$

118,228

$

118,228

N/A

Health and Welfare Benefits

$

0

$

0

$

29,154

$

43,731

$

0

$

0

N/A

Outplacement

$

0

$

0

$

17,000

$

17,000

$

0

$

0

N/A

Total Benefits &
Perquisites

$

93,712

$

0

$

258,094

$

1,329,061

$

211,940

$

118,228

N/A

280G Tax
Gross-Up

N/A

N/A

N/A

$

3,788,166

N/A

N/A

N/A

Long-Term
Incentives

Gain on Accelerated Stock Options

$

0

$

0

$

2,767,155

$

2,919,573

$

2,767,155

$

2,767,155

N/A

Value of Accelerated Restricted
Stock

$

0

$

0

$

545,000

$

553,800

$

545,000

$

545,000

N/A

Value of Accelerated Performance
Shares

$

0

$

0

$

0

$

1,223,206

$

236,785

(e)

$

236,785

(e)

N/A

Total Value of Accelerated
Equity Grants

$

0

$

0

$

3,312,155

$

4,696,579

$

3,548,940

$

3,548,940

N/A

Total Value: Incremental
Benefits

$

93,712

$

0

$

6,530,249

$

14,366,471

$

3,760,880

$

3,667,168

N/A

(a)

In the event of a Change in Control and no termination of
employment, only the long-term incentive values would be payable
to the executive and would not result in excise tax under
Section 4999 of the Code.

(b)

The incremental amounts shown are in addition to the amounts
disclosed in the Pension Benefits table and, with the exception
of the CIC enhancement, result solely from differences in timing
and form of payment. The incremental values assume that all
benefits are paid as a one-time lump sum and reflect interest
and mortality assumptions under the Companys Pension Plan
and include a 5% interest rate, whereas the Pension Plan table
reflects long-term assumptions used for financial statement
purposes.

(c)

In the case of a termination for Cause, non-qualified benefits
under the Supplemental Plan and Mr. Goldners
employment agreement, including both pension and deferred
compensation, are subject to forfeiture.

(d)

If Mr. Goldner terminates for reasons other than Voluntary
Resignation or Involuntary for Cause, he will receive his
deferred bonus with investment experience which was scheduled to
vest on March 12, 2007.

(e)

For purposes of these calculations the target number of shares
is pro-rated for the portion of the performance period completed
as of December 29, 2006.

In the event of a Change in Control and no termination of
employment, only the long-term incentive values would be payable
to the executive and would not result in excise tax under
Section 4999 of the Code.

(b)

The incremental amounts shown are in addition to the amounts
disclosed in the Pension Benefits table and, with the exception
of the CIC enhancement, result solely from differences in timing
and form of payment. The incremental values assume that all
benefits are paid as a one-time lump sum and reflect interest
and mortality assumptions under the Companys Pension Plan
and include a 5% interest rate, whereas the Pension Plan table
reflects long-term assumptions used for financial statement
purposes.

(c)

In the case of a termination for Cause, non-qualified benefits
under the Supplemental Plan and Mr. Hargreaves change
in control agreement, including both pension and deferred
compensation, are subject to forfeiture.

(d)

For purposes of these calculations the target number of shares
is pro-rated for the portion of the performance period completed
as of December 29, 2006.

In the event of a Change in Control and no termination of
employment, only the long-term incentive values would be payable
to the executive and would not result in excise tax under
Section 4999 of the Code.

(b)

The incremental amounts shown are in addition to the amounts
disclosed in the Pension Benefits table and, with the exception
of the CIC enhancement, result solely from differences in timing
and form of payment. The incremental values assume that all
benefits are paid as a one-time lump sum and reflect interest
and mortality assumptions under the Companys Pension Plan
and include a 5% interest rate, whereas the Pension Plan table
reflects long-term assumptions used for financial statement
purposes.

(c)

In the case of a termination for Cause, non-qualified benefits
under the Supplemental Plan and Mr. Naglers change in
control agreement, including both pension and deferred
compensation, are subject to forfeiture.

(d)

For purposes of these calculations the target number of shares
is pro-rated for the portion of the performance period completed
as of December 29, 2006.

Amounts will be payable in British Pound Sterling. Conversion to
$US reflects a conversion rate of $1.84 per British Pound

(b)

In the event of a Change in Control and no termination of
employment, only the long-term incentive values would be payable
to the executive. Mr. Gardner, as a U.K. citizen, is not
subject to Section 4999 of the Code.

Agreements
and Arrangements Providing Post-Employment and Change in Control
Benefits

The Company provides post-employment benefits through
broad-based programs as well as individual agreements for
certain executives. Benefits provided through each of the
following programs are summarized below and the value of these
benefits in various situations is included in the preceding
tables.



Hasbro Equity Incentive Plans



Hasbro Severance Benefit Plan



Change of Control Agreements



Post-Employment Agreement with Alfred Verrecchia



Employment Agreement with Brian Goldner

Benefits
Under Hasbro Equity Incentive Plans

The executive officers of the Company and certain of the
Companys other employees have outstanding equity awards,
in the form of stock options, restricted stock grants, deferred
restricted stock units
and/or
contingent stock performance awards, under a number of equity
incentive plans, including the Companys 1995 Stock
Incentive Performance Plan, 1997 Employee Non-qualified Stock
Plan and 2003 Stock Incentive Performance Plan.

Unless modified by the individual equity grant agreements
entered into between the Company and an executive officer, all
equity awards (including stock options, restricted stock grants,
deferred restricted stock units and contingent stock performance
awards) under all of the Companys equity incentive plans
are subject to the post-termination provisions which are
summarized below, based on the type of termination or the
occurrence of a change of control.

Effect
of a Change of Control

Upon a change in control, whether or not an executive
officers employment is terminated, all of such
officers options become immediately exercisable and will
be canceled in exchange for payment in the amount of the
difference between the highest price paid for a share of the
Companys Common Stock in the transaction or series of
transactions pursuant to which the Change of Control shall have
occurred or, if higher, the highest reported sales price of a
share of Common Stock during the
sixty-day
period immediately preceding the date of the Change of Control,
and the exercise price of such options. This payment will be
made in a lump sum in cash or shares of Common Stock, or a
combination thereof, in the discretion of the Compensation
Committee.

Shares of restricted stock, deferred restricted stock units and
the target number of shares subject to contingent stock
performance awards will become immediately vested upon a change
in control and settled in a similar manner as stock options,
described above, except that there is no exercise price for
restricted stock, deferred stock units or performance shares, so
the value received will be the product of the number of shares
multiplied by the highest price paid for a share of the
Companys Common Stock in the transaction or series of
transactions pursuant to which the Change of Control shall have
occurred or, if higher, the highest reported sales price of a
share of Common Stock during the
sixty-day
period immediately preceding the date of the Change of Control.

For purposes of the Companys equity incentive plans,
Change of Control bears the same definition as
described in the Change of Control Agreements, which are
described below.

Disability
Termination

If an executive officers employment with the Company is
terminated due to a permanent disability of such officer, then
for such officers outstanding equity awards: (i) all
unvested stock option awards immediately vest and become
exercisable for a period of one year following the date of such
disability, (ii) all restricted and deferred stock awards
immediately vest and (iii) outstanding contingent stock
performance awards remain outstanding for the remainder of the
performance period and at the end of the performance period the
number of shares which would have been earned under the award is
pro-rated based on the portion of the performance period prior
to officers termination due to disability and such
pro-rated number of shares is paid to the officer.

Termination
due to Death of an Officer

If an executive officers employment with the Company
terminates due to the officers death, then for such
officers outstanding equity awards (i) all unvested
stock option awards immediately vest and become exercisable for
a period of one year following the date of death or the
appointment of the executor of such officers estate,
(ii) all restricted stock and deferred stock unit awards
immediately vest and (iii) outstanding contingent stock
performance awards are paid out based on the pro-rated portion
of the performance period completed prior to the officers
death, with such pro-rated period applied to the target number
of shares subject to such awards.

Retirement

Upon retirement of an executive officer, outstanding equity
awards are treated in the following manner: (i) if the
retirement qualifies as normal retirement, where the officer is
65 or older and has five or more years of service with the
Company, all stock option awards vest and become exercisable for
a period of one year following retirement, (ii) if the
retirement qualifies as early retirement under the equity plans,
the Compensation Committee has discretion whether or not to
accelerate the vesting of unvested stock options, restricted
stock and deferred stock units (the preceding tables assume the
Compensation Committee does not exercise its discretion to vest
additional shares) and (iii) if it qualifies as normal
retirement or early retirement, unearned performance share
awards remain outstanding for the remainder of the performance
period and at the end of the period the number of shares which
are

actually earned are pro-rated for the portion of the performance
period during which the officer was employed and such pro-rated
portion is paid to the retired executive.

Other
Voluntary or Involuntary Terminations

For all other terminations of employment by an executive
officer, no additional vesting of equity awards occurs as a
result of termination but (i) stock options that were
currently exercisable prior to termination remain exercisable
for a period of from three (in the case of stock options granted
with an exercise price equal to fair market value on the date of
grant) to six (in the case of stock options granted with an
exercise price in excess of the fair market value on the date of
grant) months following the date of termination and
(ii) all unvested restricted shares and stock units, and
unearned contingent stock performance awards, are forfeited.

Hasbro
Severance Benefit Plan

The Companys Severance Benefits Plan provides for a basic
level of severance benefits and a more substantial level of
benefits, subject to the individual signing a severance
agreement acceptable to the Company. These benefits are provided
if the executive is terminated by the Company without cause. The
benefits shown for Mr. Hargreaves, Mr. Nagler and
Mr. Gardner in the preceding tables assume that each
officer signs an acceptable severance agreement and is thereby
eligible for the following benefits under the Companys
Severance Benefits Plan: (i) continuation of base salary
for a period equal to the greater of 2 weeks for each
complete year of service with the Company or one year,
(ii) continuation of Health & Welfare benefits for
the same period including medical, dental, vision and life
insurance, with the Company sharing the cost at the same rate as
a similarly situated active employee and
(iii) participation in an outplacement program. The amount
shown in the tables above assumes one year of participation for
each of these three executives. However, benefits under the
Companys Severance Benefits Plan cease upon re-employment
of an executive, provided that if the individual notifies the
Company of the new employment, the Company will provide a lump
sum equal to 50% of the remaining severance pay as of the date
of new employment.

Change
of Control
Agreements.

Each of Alfred J. Verrecchia, Brian Goldner, David D.R.
Hargreaves, Barry Nagler, Simon Gardner and Frank P.
Bifulco, Jr. (President, North American Sales) are parties
to change in control agreements, as amended (the Change of
Control Agreements) with the Company. The Change of
Control Agreements come into effect only upon a Change of
Control, as defined therein, and continue for three years
after such date (the Employment Period).

If, during the Employment Period, an executives employment
with the Company is involuntarily terminated other than for
Cause, the executive is entitled to the
executives (a) average annual salary for the five
years preceding the Change of Control (or such lesser number of
actual years employed) plus (b) the greater of (x) the
target bonus during the year of termination and (y) the
average annual bonus for the five years preceding the Change of
Control (or such lesser number of actual years employed), in
each case multiplied by three (or multiplied by two if the
special bonus described in the following sentence has already
been paid). In addition, if the executive remains employed
through the first anniversary of the Change in Control the
executive will receive a special bonus equal to one years
salary and bonus, computed using the five-year look back period
described in the prior sentence.

If the executives employment is involuntarily terminated
other than for Cause during the Employment Period,
the executive would also be entitled to an amount equal to the
shortfall between the actuarial benefit payable to the executive
under the Companys retirement plans as a result of the
early termination and the amount the executive would have
received if the executive had continued in the employ of the
Company for the remainder of the Employment Period. In addition,
the executive and the executives family would be entitled
to the continuation of medical, welfare, life insurance,
disability and other benefits for at least the remainder of the
Employment Period. If the executive is subject to the payment of
excise tax under Section 4999 of the Code, the Company will
pay such executive an additional amount so as to place the
executive in the same after-tax position such executive would
have been in had such excise tax not applied.

In addition, the Change of Control Agreements permit an
executive to terminate the executives employment for
Good Reason at any time or for any reason during a
30-day
period immediately following the first anniversary of the Change
of Control and receive the above-described severance benefits.
Good Reason includes diminution of the
executives responsibilities or compensation, relocation or
purported termination otherwise than as expressly permitted by
the Change of Control Agreements. Under certain circumstances,
certain payments by the Company pursuant to the Change of
Control Agreements may not be deductible for federal income tax
purposes pursuant to Section 280G of the Code.

A Change of Control is defined as the occurrence of
certain events, including acquisition by a third party of 20% or
more of the Companys outstanding voting securities, a
change in the majority of the Board, consummation of a
reorganization, merger, consolidation, substantial asset sale
involving, or shareholder approval of a liquidation or
dissolution of, the Company subject, in each case, to certain
exceptions. Cause is defined, for purposes of the
Agreements, as demonstrably willful or deliberate violations of
the executives responsibilities which are committed in bad
faith or without reasonable belief that such violations are in
the best interests of the Company, which are unremedied after
notice, or conviction of the executive of a felony involving
moral turpitude.

Post-Employment
Agreement with Alfred J. Verrecchia

The Company and Mr. Verrecchia entered into a
Post-Employment Agreement, effective as of March 10, 2004
(the Post-Employment Agreement). Under the
Post-Employment Agreement, if Mr. Verrecchias
employment is terminated by the Company without
Cause or by Mr. Verrecchia for Good
Reason, then the Company shall pay Mr. Verrecchia
severance pay of up to three years annual base salary and
bonus, contingent on Mr. Verrecchia executing a severance
and settlement agreement. If Mr. Verrecchias
employment is terminated by the Company without Cause or by
Mr. Verrecchia with Good Reason: (i) after
September 1, 2006, but before March 1, 2008,
Mr. Verrecchia is eligible to receive severance pay of
monthly base salary and monthly bonus for the number of months
which is equal to thirty-six (36) less the number of whole
months for which Mr. Verrecchia is employed by the Company
after September 1, 2006 and (ii) after March 1,
2008, Mr. Verrecchia is eligible to receive severance pay
of monthly base salary and monthly bonus for eighteen
(18) months. If Mr. Verrecchias employment is
terminated by the Company without Cause and at the time of such
termination the Company has in place a severance plan of general
applicability for which Mr. Verrecchia is eligible,
Mr. Verrecchia will be entitled to the greater of the
benefits offered under this general severance plan and those
offered under the Post-Employment Agreement. Finally, if
Mr. Verrecchias employment is terminated by mutual
agreement of the Company and Mr. Verrecchia because of a
family medical emergency or other reason beyond
Mr. Verrecchias control which results in him being
unable to work or because of a disability (as defined), then in
each case Mr. Verrecchia is entitled to eighteen
(18) months of monthly base salary and bonus.

For purposes of the Post-Employment Agreement, monthly base
salary is equal to the annual base salary paid to
Mr. Verrecchia for the fifty-two (52) weeks
immediately preceding the week of his termination, divided by
twelve (12). The monthly bonus shall equal the annual target
bonus for Mr. Verrecchia for the year in which his
employment is terminated, divided by twelve (12).
Mr. Verrecchia is also entitled to continuation of medical,
dental and certain other benefits during the period in which he
is receiving severance pay under the Post-Employment Agreement.
However, in the event of a Change in Control, the benefits
payable under the Post-Employment Agreement are reduced by the
amount of any benefits received by Mr. Verrecchia under the
Change of Control Agreements described above.

The Post-Employment Agreement also provides Mr. Verrecchia
with certain enhanced retirement benefits. Unless
Mr. Verrecchias employment is terminated by the
Company for Cause, he shall receive annuity payments in monthly
installments following the termination of his employment for the
remainder of his life in an annual amount equal to 1.5% of his
final average pay (as defined in the Post-Employment Agreement)
multiplied by Mr. Verrecchias years of service with
the Company, but not to exceed 60% of final average pay. The
enhanced retirement benefit is also reduced by the benefits
provided to Mr. Verrecchia by the Pension Plan and
Supplemental Benefit Plan. If Mr. Verrecchias
employment terminates due to his death, his spouse is entitled
to the actuarial equivalent of the enhanced retirement benefits
described above.

For purposes of the Post-Employment Agreement Good
Reason means a material demotion of Mr. Verrecchia or
a material reduction in Mr. Verrecchias base salary
or target bonus, unless such reduction is due to a generally
applicable reduction in the compensation of the Companys
senior executives. Cause has the same definition as
in the Change in Control Agreements described above.

On January 20, 2006, the Company entered into an Employment
Agreement (the Employment Agreement) with Brian
Goldner, the Companys then newly-appointed Chief Operating
Officer. Under the Employment Agreement, Mr. Goldner agreed
to serve as the Companys Chief Operating Officer,
reporting to the Companys President and Chief Executive
Officer. The Employment Agreement has an initial three-year term
expiring January 19, 2009. Thereafter the Employment
Agreement is automatically extended for additional one-year
terms unless either the Company or Mr. Goldner provide
notice of the intent not to renew at least 180 days prior
to the expiration of the then current term.

Under the Employment Agreement, for that portion of 2006
occurring after the date of the Employment Agreement,
Mr. Goldner was entitled to receive an annualized base
salary of $800,000 and be eligible to receive a management
incentive plan bonus based on a target of eighty-five percent
(85%) of his earned base salary. Beginning in 2007 and
thereafter, the Employment Agreement provides that
Mr. Goldners base salary and target bonus will be
reviewed in accordance with the Companys compensation
policies for senior executives and will be adjusted to the
extent, if any, deemed appropriate by the Compensation Committee
of the Companys Board.

Pursuant to the Employment Agreement, Mr. Goldner was
granted 20,000 shares of restricted stock on
January 20, 2006. These shares will vest in one installment
on January 20, 2009, provided that Mr. Goldner remains
employed with the Company through that date. The shares are
subject to earlier vesting in certain situations, such as a
change in control of the Company or upon the death of
Mr. Goldner.

The Employment Agreement provides that Mr. Goldner will
participate in the Companys long-term incentive program in
the same manner as other senior executives, provided that his
target award shall be second only to that of the Chief Executive
Officer. Mr. Goldner will also participate in the
Companys other benefit programs under the terms which are
extended to senior executives.

In the event that Mr. Goldners employment is
terminated: (A) by the Company for Cause, or at
his election for other than Good Reason, the Company
will pay Mr. Goldner the compensation and benefits
otherwise payable to him through the last day of his actual
employment; (B) due to Mr. Goldners death or
Disability (as defined in the Employment Agreement) the Company
will pay to Mr. Goldner or his estate the compensation
which would otherwise have been payable to him up to the end of
the month in which the termination occurs and (C) by the
Company without Cause, or by Mr. Goldner for Good Reason,
and provided that Mr. Goldner complies with the terms of
the Companys severance policy, then Mr. Goldner will
be entitled to severance benefits for two years pursuant to the
Companys severance plan, payment of a target bonus for
each of the two fiscal years following the year of termination
and all of his unvested stock options and restricted stock will
fully vest. The Companys severance plan includes the
payment of base salary and continuation of benefits during the
severance period. If Mr. Goldner begins permissible
alternate employment during the severance period and notifies
the Company of such employment, he will receive in a lump sum
50% of any remaining salary payments due as severance under the
Employment Agreement.

For purposes of the Employment Agreement Cause shall
be deemed to exist upon (a) Mr. Goldners
material failure to perform: (i) Mr. Goldners
assigned duties for the Company; or
(ii) Mr. Goldners obligations under the
Employment Agreement; (b) conduct of Mr. Goldner
involving fraud, gross negligence or willful misconduct or other
action which damages the reputation of the Company;
(c) Mr. Goldners indictment for or conviction
of, or the entry of a pleading of guilty or nolo contendere by
Mr. Goldner to, any crime involving moral turpitude or any
felony; (d) Mr. Goldners fraud, embezzlement or
other intentional misappropriation from the Company; or

(e) Mr. Goldners material breach of any material
policies, rules or regulations of employment which may be
adopted or amended from time to time by the Company. Good
Reason means: (a) a material reduction in
Mr. Goldners base salary or target bonus, without his
consent, unless such reduction is due to a generally applicable
reduction in the compensation of senior executives, or
(b) an organizational change in which Mr. Goldner no
longer reports directly to Alfred J. Verrecchia as Chief
Executive Officer.

The Employment Agreement contains certain post-employment
restrictions on Mr. Goldner, including a two-year
non-competition agreement. The Agreement does not modify
Mr. Goldners existing Change in Control Agreement
with the Company, dated March 18, 2000. In the event of a
Change in Control (as defined in the Change in Control
Agreement) the benefits payable pursuant to the Employment
Agreement will be reduced by any severance benefits payable
under the Change in Control Agreement.

Transition
Agreement with Simon Gardner

Hasbro International, Inc., which is a wholly-owned subsidiary
of the Company, entered into a Transition Agreement, dated
March 13, 2007 (the Transition Agreement) with
Simon Gardner, President of Hasbro Europe.

Pursuant to the Agreement, Mr. Gardner continued to work in
his current role on a full-time basis until March 31, 2007.
From April 1, 2007 through November 30, 2007 (the
Leave Period) Mr. Gardner will be on U.K.
garden leave. During this period, Mr. Gardner will answer
any requests for information from the Company and will make
himself available to, and cooperate fully with, the Company in
any proceedings for which the Company needs his assistance, but
Mr. Gardner will not be under an obligation to provide any
other services to the Company. The Company will continue to pay
Mr. Gardner his salary and provide him with applicable
employee benefits during the Leave Period, provided that
Mr. Gardner will not receive any further equity awards and
will not be eligible for any bonus for fiscal 2007.

Within thirty (30) days of November 30, 2007 (the
Termination Date) the Company will pay
Mr. Gardner 26,414 British pounds (the Termination
Payment) in compensation for the termination of
Mr. Gardners employment. Following the Termination
Date and payment of the Termination Payment, Mr. Gardner
will not be entitled to any further benefits or payments from
the Company except for Mr. Gardners then existing
defined contribution benefits.

The Agreement provides that Mr. Gardner will continue to
keep the Companys confidential information secret and will
not use it for his own or anyone elses benefit both before
and after the Termination Date. Mr. Gardner also undertook,
in consideration of a payment of 1,000 British pounds, not to
compete, directly or indirectly, with the Company for a period
ending on December 31, 2007.

Compensation
Committee Interlocks and Insider Participation

The members of the Compensation Committee of the Board as of the
2006 fiscal year end were Jack M. Connors, Jr.
(Chair), Frank J. Biondi, Jr. and E. Gordon Gee. None of
the members of the Compensation Committee during fiscal 2006 had
at any time been an officer or employee of the Company or of any
of its subsidiaries. No executive officer of the Company served
as a member of the compensation committee or board of directors
of any other entity which had an executive officer serving as a
member of the Companys Board or Compensation Committee
during fiscal 2006.

The following table sets forth information concerning
compensation of the Companys directors for fiscal 2006.
Mr. Verrecchia, the Companys President and Chief
Executive Officer, also serves on the Companys Board.
However, Mr. Verrecchia does not receive any compensation
for his Board service beyond the compensation he receives as an
executive officer of the Company.

Director
Compensation

Change in

Pension

Value and

Fees

Non-Qualified

Earned or

Non-Equity

Deferred

Paid in

Stock

Option

Incentive Plan

Compensation

All Other

Cash

Awards

Awards

Compensation

Earnings

Compensation

Total

Name

($)(a)

($)(b)

($)(b)

($)

($)(c)

($)

($)

Basil L. Anderson

$

95,071

$

213,646

$

47,256

N/A

N/A

N/A

$

355,973

Alan R. Batkin

$

60,509

$

389,168

$

0

N/A

$

11,590

N/A

$

461,267

Frank J. Biondi, Jr.

$

66,009

$

126,421

$

44,200

N/A

N/A

N/A

$

236,630

John M. Connors, Jr.

$

70,534

$

165,742

$

34,023

N/A

N/A

N/A

$

270,299

Michael W.O. Garrett

$

67,009

$

127,182

$

18,233

N/A

N/A

N/A

$

212,424

E. Gordon Gee

$

61,509

$

162,466

$

30,450

N/A

N/A

N/A

$

254,425

Jack M. Greenberg

$

83,034

$

155,194

$

30,744

N/A

N/A

N/A

$

268,972

Alan G. Hassenfeld

$

301,509

$

89,991

$

1,034,141

(d)

N/A

N/A

N/A

$

1,425,641

Claudine B. Malone(e)

$

73,009

$

116,838

$

1,664

N/A

$

38,308

N/A

$

229,819

Edward M. Philip

$

84,009

$

213,426

$

40,683

N/A

N/A

N/A

$

338,118

Eli J. Segal(f)

$

26,250

$

6,588

$

53,606

N/A

N/A

N/A

$

86,444

Paula Stern

$

60,009

$

175,869

$

44,200

N/A

N/A

N/A

$

280,078

(a)

Includes amounts which are deferred by directors into either the
stock unit account or the interest account under the Deferred
Compensation Plan for Non-Employee Directors.

(b)

Please see note 10 to the financial statements included in
the Companys Annual Report on
Form 10-K,
for the year ended December 31, 2006, for a detailed
discussion of the assumptions used in valuing stock and option
awards. The following quarter end stock prices were used for
purposes of valuing directors balances in stock unit
accounts under the Deferred Plan in fiscal 2006: Q1, $21.00, Q2
$18.11, Q3 $22.75 and Q4 $27.25.

In addition to reflecting the accounting expense recognized by
the Company for stock awards made to the directors (this expense
for the director stock award in 2006 was $89,991 per
director), the stock awards column also includes, to the extent
applicable, the (i) 10% matching contribution which the
Company makes to a directors account under the Deferred
Compensation Plan for Non-Employee Directors (the Deferred
Plan) on all amounts deferred by such director into the
Companys stock unit account under the Deferred Plan,
(ii) deemed dividends which are paid on outstanding
balances in stock unit accounts under the Deferred Plan and
(iii) the variable accounting expense which the Company
recognizes with respect to the changes in value of outstanding
stock unit account balances held by the directors under the
Deferred Plan. For directors who have significant accumulated
balances in their stock unit accounts under the Deferred Plan,
the increase in the value of such accounts in a year, such as
2006, in which the Companys stock price appreciated
significantly, can result in a significantly larger stock
expense for the Company, which is in turn reflected in a
significantly higher value in the Stock Awards
column above.

No options were granted to any of the outside directors in 2006.
The amounts reflected in the option awards column represent
expense associated with previous option grants made to these
directors. For Mr. Hassenfeld this expense relates to
options which were granted to him when he served as a full-time
employee and executive officer of the Company.
Mr. Hassenfeld retired as an employee of the Company
effective on December 31, 2005.

The amounts reflected in this column consist entirely of the
change in pension value during fiscal 2006 for the two
directors. As is discussed in more detail in the following
pages, in 2003 the Company eliminated its director pension plan
on a go forward basis, such that directors joining the board
after that time would not be eligible to participate in the
pension plan. However, directors serving on the Board at the
time that the pension plan was eliminated were given the ability
to (i) either continue to accrue benefits under the
director pension plan or instead to elect, effective as of
specified dates ranging from May 1, 2003 through
May 1, 2006, to start receiving stock options under the
2003 Stock Option Plan for Non-Employee Directors (the
2003 Director Option Plan) and (ii) to the
extent that a director opted into participation in the
2003 Director Option Plan, to have their accumulated
benefits under the pension plan converted into stock units under
the Deferred Compensation Plan for Non-employee directors (the
Deferred Plan). With the exception of
Mr. Batkin and Ms. Malone, all of the Companys
current directors opted into the 2003 Director Option Plan
in 2003 and elected to convert their balance in the director
pension plan into deferred stock units under the Deferred Plan.
As such, other than Mr. Batkin and Ms. Malone, no
current directors will receive any pension benefits and none of
these directors accrued any such benefits during 2006.

Mr. Batkin continued to accrue further benefits under the
director pension plan through May 1, 2006. As of that date
Mr. Batkins benefits under the director pension plan
were fixed and will not continue to increase. Ms. Malone
will continue to accrue benefits under the director pension plan
for the remainder of the time she serves on the Companys
board of directors.

This column does not include interest earned on balances held in
directors interest accounts under the Deferred Plan. Such
interest is paid at the five-year treasury bill rate.

(d)

This amount relates to options which were granted to
Mr. Hassenfeld prior to his retirement as a full-time
employee of the Company. These options, to the extent unvested,
continue to vest during Mr. Hassenfelds service on
the Board.

(e)

Ms. Malone previously served on the Board from 1992 to 1999
and accrued a pension benefit in accordance with that prior
service, which is currently being paid to her. Ms. Malone
was paid $6,542 in 2006 under this benefit.

(f)

Mr. Segal passed away in February of 2006.

(g)

The non-employee directors held the following outstanding stock
and option awards as of December 29, 2006

Outstanding

Outstanding

Name

Option Awards

Stock Awards

Basil L. Anderson

29,250

4,769

Alan R. Batkin

0

4,769

Frank J. Biondi, Jr.

29,250

4,769

John M. Connors, Jr.

18,000

4,769

Michael W.O. Garrett

12,000

4,769

E. Gordon Gee

29,250

4,769

Jack M. Greenberg

18,000

4,769

Alan G. Hassenfeld

1,694,769

4,769

Claudine B. Malone

0

4,769

Edward M. Philip

29,250

4,769

Paula Stern

29,250

4,769

Current
Director Compensation Arrangements

With the exception of Mr. Hassenfeld, whose Chairmanship
Agreement is described later in this proxy statement, all
members of the Board who are not otherwise employed by the
Company (non-employee directors) receive a retainer
of $55,000 per year. The Chairs of the Audit Committee, the
Compensation Committee, the Finance Committee and the
Nominating, Governance and Social Responsibility Committee each
receive an additional retainer of $10,000 per year for
their service as Chairs of these committees. The Companys
Presiding Director currently receives an additional retainer of
$25,000 per year for serving in that role.

No meeting fees are paid for attendance at meetings of the full
Board. However, non-employee directors receive a fee of $1,500
for each committee meeting attended in person, and $1,000 for
telephonic participation in committee meetings. Action by
written consent is not considered attendance at a committee
meeting for purposes of fees to directors.

Beginning in 2006, the Company shifted to stock awards, instead
of stock options, to provide equity compensation to its
non-employee directors. As part of the implementation of this
policy, the Company terminated the 2003 Stock Option Plan for
Non-Employee Directors (which is described below) effective as
of December 31, 2005. Under its new program, the Company
anticipates issuing to each non-employee director, in May of
every year (beginning with May of 2006), that number of shares
of Common Stock which have a fair market value equal to $90,000
(based on the fair market value of the Common Stock on the date
of grant). These shares are immediately vested, but the Board
has adopted stock ownership guidelines which mandate that Board
members may not sell any shares of the Companys Common
Stock which they hold, including shares which are obtained as
part of this yearly stock grant, until they own shares of Common
Stock with an aggregate market value equal to at least $275,000
(which is equivalent to five times the annual Board retainer).
Board members are permitted to sell shares of Common Stock they
hold with a value in excess of $275,000, as long as they
continue to hold at least $275,000 worth of Common Stock.

Pursuant to the Deferred Compensation Plan for Non-employee
Directors (the Deferred Plan), which is unfunded,
non-employee directors may defer some or all of the annual Board
retainer and meeting fees into a stock unit account, the value
of each unit initially being equal to the fair market value of
one share of Common Stock as of the end of the quarter in which
the compensation being deferred would otherwise be payable.
Stock units increase or decrease in value based on the fair
market value of the Common Stock. In addition, an amount equal
to the dividends paid on an equivalent number of shares of
Common Stock is credited to each non-employee directors
stock unit account as of the end of the quarter in which the
dividend was paid. Non-employee directors may also defer any
portion of their retainer
and/or
meeting fees into an interest account under the Deferred Plan,
which bears interest at the five-year treasury rate.

The Company makes a deemed matching contribution to a
directors stock unit account under the Deferred Plan equal
to 10% of the amount deferred by the director into the stock
unit account, with one-half of such Company contribution vesting
on December 31st of the calendar year in which the deferred
compensation otherwise would have been paid and one-half on the
next December 31st, provided that the participant remains a
director on such vesting date. Unvested Company contributions
will automatically vest on death, total disability or retirement
by the director at or after age seventy-two. Compensation
deferred under the Deferred Plan, whether in the stock unit
account or the interest account, will be paid out in cash after
termination of service as a director. Directors may elect that
compensation so deferred be paid out in a lump sum or in up to
ten annual installments, commencing either in the quarter
following, or in the January following, the quarter in which
service as a director terminates.

Chairmanship
Agreement with Alan G. Hassenfeld

Effective on August 30, 2005 the Company entered into a
Chairmanship Agreement (the Chairmanship Agreement)
with Alan G. Hassenfeld. The Chairmanship Agreement provided for
Mr. Hassenfelds transition from an employee Chairman
of the Board to a non-employee Chairman of the Board. Pursuant
to the Chairmanship Agreement, Mr. Hassenfeld continued to
serve as an employee Chairman of the Company until
December 31, 2005 (the Transition Date).

On the Transition Date, Mr. Hassenfeld ceased to be an
employee of the Company and his employee salary, bonus and other
employee benefits ceased as well, provided that
Mr. Hassenfeld retained all of his vested retirement
benefits provided under the Companys retirement plans, as
well as all other retirement benefits generally made available
to retired employees under other plans and programs of the
Company. Following the Transition Date, Mr. Hassenfeld
serves as the non-employee Chairman of the Board for an initial
three-year term beginning January 1, 2006 and ending on
December 31, 2008 (the Chairmanship Period).
Thereafter, Mr. Hassenfelds Chairmanship Agreement is
subject to renewal for additional one-year periods unless he or
the Board provide notice of the intent not to renew at least six
months prior to the end of the then current term.
Mr. Hassenfelds continued

service as the non-employee Chairman of the Board will be
contingent upon his annual reelection to the Board by the
Companys shareholders.

The Chairmanship Agreement provides that during the Chairmanship
Period, Mr. Hassenfeld shall provide leadership to the
Board by, among other things, working with the Chief Executive
Officer, the Presiding Director and the Corporate Secretary to
set Board calendars, determine agendas for Board meetings,
ensure proper flow of information to Board members, facilitate
effective operation of the Board and its Committees, help
promote Board succession planning and the recruitment and
orientation of new directors, address issues of director
performance, assist in consideration and Board adoption of the
Companys strategic plan and annual operating plans, and
help promote senior management succession planning. In addition,
the Chairman will assist the Companys Chief Executive
Officer by advising on Board-related issues, helping to develop
programs and actions to reinforce Hasbros core values,
providing leadership in the development of the Companys
corporate social responsibility strategy, acting as a Company
spokesperson on issues of corporate social responsibility, and
representing the Company at industry conferences, as appropriate.

Mr. Hassenfeld receives a retainer during the Chairmanship
Period of $300,000 per year (the Chairmanship
Retainer) and is eligible to receive Board meeting fees,
equity grants and such other benefits (excluding the general
non-employee Board retainer, which Mr. Hassenfeld does not
receive) as may be provided from time to time to the other
non-employee members of the Companys Board. During the
Chairmanship Period, Mr. Hassenfeld is also entitled to an
office, support services and expense reimbursement pursuant to
an agreed budget.

As of the Transition Date, Mr. Hassenfeld became eligible
to begin receiving a retirement pension benefit payable in
regular monthly installments during his remaining lifetime. This
annual pension benefit, payable in a single-life annuity, will
be $814,500 a year until Mr. Hassenfeld reaches the age of
65. Thereafter, the annual pension benefit will be $796,800.
These pension benefit payments include all pension benefits
previously accrued by Mr. Hassenfeld as an employee of the
Company. In the event of Mr. Hassenfelds death, the
pension benefits described in the preceding sentences would be
payable in an actuarially equivalent joint and survivor form to
Mr. Hassenfelds spouse. In addition, by virtue of his
ongoing service as Chairman of the Board,
Mr. Hassenfelds outstanding stock options will
continue to vest, in accordance with their terms, during the
time that Mr. Hassenfeld serves as a non-employee Chairman.

In the event that Mr. Hassenfelds service as a
non-employee Chairman ends due to his resignation, death,
disability, or failure to be reelected to the Board by the
Companys shareholders, or in the event that the Company
terminates Mr. Hassenfelds service as Chairman for
Cause (as defined in the Chairmanship Agreement),
Mr. Hassenfelds compensation as a non-employee
Chairman, including the Chairmanship Retainer and any additional
compensation provided to non-employee directors, would cease
immediately. If Mr. Hassenfelds service as Chairman
is terminated by Hasbro without Cause during the Chairmanship
Period, Mr. Hassenfeld would be entitled to receive the
Chairmanship Retainer payable for the remaining time of the
Chairmanship Period. In the case of termination resulting from
disability, failure to be reelected, or without Cause by Hasbro,
Mr. Hassenfeld would continue to receive his retirement
benefits described above as well.

Former
Director Compensation Arrangements In Which Certain Directors
Participate or Under Which Directors Previously Received
Awards

Under the Hasbro, Inc. Retirement Plan for Directors (the
Retirement Plan), which is unfunded, each
non-employee
director who was serving on the Board prior to May 13, 2003
(and who was not otherwise eligible for benefits under the
Companys Pension Plan), has attained the age of sixty-five
and completed five years of service on the Board was entitled to
receive, beginning at age seventy-two, an annual benefit equal
to the annual retainer payable to directors during the year in
which the director retires (which does not include the fees paid
to directors for attendance at meetings). If a director retires
on or after the directors seventy-second birthday, the
annual benefit continues for the life of the director. If a
director retires between the ages of sixty-five and seventy-two,
the number of annual payments will not exceed the retired
directors years of service. Upon a Change of Control, as
defined in

the Retirement Plan, participating directors and retired
directors are entitled to lump-sum payments equal to the present
value of their benefits under the Retirement Plan.

Directors appointed to the Board on or after May 14, 2003,
the date that the Companys shareholders approved the
Companys former 2003 Stock Option Plan for Non-Employee
Directors (the 2003 Director Plan) which is
described below, were not eligible to participate in the
Retirement Plan, and automatically participated in the
2003 Director Plan prior to its termination on
December 31, 2005. The benefits of the 2003 Director
Plan replaced the benefits of both the Retirement Plan and the
1994 Director Plan (described below). Non-employee
directors who were serving on the Board prior to May 13,
2003, and thus were participating in the Retirement Plan, and
who were not scheduled to retire at the end of their current
term in office as of the time of approval by shareholders of the
2003 Director Plan, were given the opportunity to elect to
participate in the 2003 Director Plan effective on either
May 14, 2003, May 1, 2004, May 1, 2005 or
May 1, 2006. Directors who were serving on the Board prior
to May 13, 2003 and who did not elect to participate in
2003 Director Plan on one of these dates continued to
participate in the Retirement Plan in accordance with its terms.
Directors serving as of May 13, 2003 who elected to
participate in the 2003 Director Plan stopped accruing
further years of service under the Retirement Plan and did not
have their benefits under the Retirement Plan adjusted for
changes in the annual retainer following the effective date of
their participation in the 2003 Director Plan.

Under the Companys former Stock Option Plan for
Non-employee Directors (the 1994 Director
Plan), approved by shareholders on May 11, 1994, each
non-employee director then in office received on May 11,
1994 and each non-employee director who joined the Board after
May 11, 1994 received upon becoming a director, a
one-time
grant of a non-qualified, nontransferable ten-year option to
purchase 11,250 shares of Common Stock at 110% of the fair
market value per share of Common Stock on the date of grant. The
options became exercisable at a rate of 20% per year
commencing on the first anniversary of the date of grant, except
that exercisability was to be accelerated upon a participant
ceasing to be a member of the Board because of permanent
disability, death, retirement at or after age seventy-two or
after a Change of Control, as defined in the 1994 Director
Plan. The 1994 Director Plan was cancelled effective upon the
date of shareholder approval of the 2003 Director Plan and
no further grants are being made under the 1994 Director
Plan, provided, however, that options previously granted under
the 1994 Director Plan continue in effect in accordance
with their terms.

The Companys 2003 Director Plan, which was approved
by the Companys shareholders at the 2003 Annual Meeting of
Shareholders (the 2003 Meeting), replaced the
benefits of the Retirement Plan and the 1994 Director Plan
described in the immediately preceding paragraphs. The
2003 Director Plan was cancelled effective
December 31, 2005 and no further grants are being made
under the 2003 Director Plan, provided, however, that
options previously granted under the 2003 Director Plan
continue in effect in accordance with their terms. Under the
2003 Director Plan each non-employee director who was
serving as a director immediately following the 2003 Meeting and
whose effective date for participation in the 2003 Director
Plan was May 14, 2003, received a one-time grant of a
non-qualified, nontransferable ten-year option to purchase
6,000 shares of the Companys Common Stock at the fair
market value of the Common Stock on the date of grant (the
First Annual Options). The First Annual Options
become exercisable at a rate of
33
1
/
3
% per
year commencing on the May 1st next following the date
of grant, except that exercisability will be accelerated upon a
participant ceasing to be a member of the Board because of
permanent disability, death, retirement at or after age
seventy-two or after a Change of Control, as defined in the
2003 Director Plan. On each subsequent May 1st, all
non-employee directors then serving on the Board, with certain
exceptions, whose effective date for participation in the
2003 Director Plan was on or prior to such May 1st,
received an additional option to purchase 6,000 shares of
the Companys Common Stock. These additional annual options
otherwise have the same terms of the First Annual Options,
except that the exercise price is based on the fair market value
of the Common Stock on the date of grant of such additional
annual options. Non-employee directors initially joining the
Board after May 14, 2003 received, under the
2003 Director Plan, an initial option to purchase
12,000 shares of Common Stock upon their election to the
Board (the Initial Options). The Initial Options had
the same terms as annual options under the 2003 Director
Plan except that they become exercisable at a rate of
20% per year commencing of the first anniversary of the
date of grant.

On February 8, 2007, the Companys Board adopted,
subject to shareholder approval, the Fifth Amendment to the 2003
Stock Incentive Performance Plan, which amendment is attached to
this proxy statement as Appendix C. The Board further
directed that the Fifth Amendment be submitted to the
shareholders of the Company for their consideration. The Fifth
Amendment effects a number of amendments (collectively the
Amendments) to the Companys 2003 Stock
Incentive Performance Plan (the 2003 Plan) which are
described in the following paragraph. The Board unanimously
recommends that the shareholders approve the Amendments.

The Amendments: (i) increase the maximum number of total
shares of stock which may be delivered pursuant to awards under
the 2003 Plan by 7,500,000 shares, (ii) of the
additional 7,500,000 shares added by the Amendments,
increase the number of shares of stock which may be delivered
pursuant to awards other than stock options or SARS, by
3,000,000 shares, (iii) extend the expiration date of
the 2003 Plan from December 31, 2008 to December 31,
2010, (iv) clarify that the 2003 Plan does not allow for
liberal share counting, such that (A) shares of Common
Stock tendered in payment of an awards exercise price,
shares withheld to pay taxes, and shares purchased by the
Company using proceeds from awards will not increase the total
number of remaining shares authorized to be delivered pursuant
to awards under the 2003 Plan and (B) the gross number of
shares covered by SARS, as opposed to only the net number
actually delivered upon settlement of SARS, count against the
authorized number of shares available under the 2003 Plan, and
(v) add a limitation to the 2003 Plan that no award may
have a term longer than ten years from the date of grant.

Purpose
of the Amendments

The 2003 Plan is designed to advance the interests of the
Company and to increase shareholder value by providing key
employees and directors of the Company, or its affiliates, with
a proprietary interest in the growth and performance of the
Company, and to provide incentives for such individuals to
continue their service with the Company or its affiliates.

The Board believes that having an adequate ability to provide
selected employees of the Company and directors with equity
awards is critical if the Company is to continue to attract and
retain qualified individuals who can make significant
contributions to the performance of the Company, and that such
awards help align the interests of those individuals with the
shareholders of the Company in enhancing the value of the Common
Stock and improving the Companys performance.

As of March 31, 2007, excluding the additional authorized
shares which the Company is asking shareholders to add to the
2003 Plan pursuant to the Amendments, there were only
approximately 651,721 shares remaining available for future
awards under the 2003 Plan. As such, if the Amendments are not
approved the Company will not have sufficient shares to make
even one more years worth of equity grants, assuming grant
practices consistent with prior years under the 2003 Plan. The
2003 Plan is the only plan the Company currently has in place
which provides for the grant of equity awards to employees and
directors.

The Board believes that approval of the Amendments, making
additional shares available for future awards under the 2003
Plan, extending the term of the 2003 Plan and effecting certain
other changes in the 2003 Plan, is critical to allow the Company
to continue to attract and retain qualified individuals who can
contribute to the Companys performance.

For the reasons set forth above, the Board adopted the
Amendments and unanimously recommends approval of the Amendments
by the shareholders of the Company.

Key
Features of the 2003 Plan, Incorporating the
Amendments

Some of the key features of the 2003 Plan, as amended by the
Amendments, are:



a prohibition against repricing stock options without
shareholder approval;

a prohibition against granting stock options at an exercise
price less than fair market value;



limits on awards that can be made to any individual in any
calendar year;



no more than 6,500,000 of the total shares authorized for
issuance under the 2003 Plan may be used for stock grants;



the total shares available for future awards pursuant to the
2003 Plan, including the additional shares provided by the
Amendments, constitute only approximately 5% of the outstanding
Common Stock as of the record date for the Meeting;



immediately following approval of the Amendments, the total
shares authorized for issuance under the 2003 Plan, including
shares previously granted or subject to currently outstanding
awards under the 2003 Plan, added together with all shares of
Common Stock subject to outstanding awards under the
Companys previous equity incentive plans, will constitute
only approximately 13.4% of the Companys diluted
outstanding number of shares on the record date (computed by
adding the number of outstanding shares of Common Stock on such
date with the number of shares then issuable pursuant to all of
the Companys prior and current equity compensation plans);



stock options granted under the 2003 Plan must vest over a
period of not less than three years, subject to limited
exceptions set forth in the plan; and



no award under the 2003 Plan can be outstanding for more than
ten years.

Description
of 2003 Plan, as Amended by the Amendments

The 2003 Plan is intended to attract and retain talented
employees and directors for the Company and its affiliates who
are in a position to make significant contributions to the
success of the Company, to reward such persons for making these
contributions and to encourage such persons to take into account
the long-term interests of the Company and enhancement of the
Companys value for its shareholders.

Section 162(m) of the Code places annual limitations on the
deductibility by public companies of compensation in excess of
$1 million paid to each of the chief executive officer and
the other four most highly compensated officers, unless, among
other things, the compensation is performance-based. For
compensation attributable to stock options and stock
appreciation rights to qualify as performance-based, the plan
under which such stock options and stock appreciation right are
granted must state a maximum number of shares with respect to
which options and rights may be granted to an individual during
a specified period and must be approved by the Companys
shareholders. The 2003 Plan is intended to comply with the
provisions of Section 162(m) so as to permit the Company to
claim an income tax deduction for total remuneration paid in
excess of $1 million in any one year to the chief executive
officer or the other four highest compensated executive
officers, although the Company has not requested or received,
and does not expect to receive a ruling from the Internal
Revenue Service to that effect.

The 2003 Plan was originally adopted by the Board on
February 12, 2003 and was approved by the Companys
shareholders at the 2003 Annual Meeting of Shareholders. The
2003 Plan was amended by the Board on February 17, 2005 and
that amendment was approved by the Companys shareholders
at the 2005 Annual Meeting of Shareholders. As amended in 2005
and thereafter, the 2003 Plan made 10,000,000 shares of
Common Stock available for the grant of equity awards,
3,500,000 shares of which could be used for stock awards
other than options and SARS.

The following is a summary of the 2003 Plan, as amended by the
Amendments, and is therefore not complete. A complete copy of
the 2003 Plan, as it existed prior to the Amendments in February
2007, is attached to this proxy statement as Appendix B,
and a complete copy of the Amendments being considered by
shareholders is attached to this proxy statement as
Appendix C.

Administration

The 2003 Plan is administered by the Compensation Committee of
the Board (the Committee). The Committee has the
authority to establish rules for the administration of the 2003
Plan; to select the employees and

directors of the Company and its affiliates to whom awards are
granted; to determine the types of awards to be granted and the
number of shares covered by such awards; and to set the terms
and conditions of such awards (including, without limitation,
but subject to the provisions described below, the power to
accelerate any vesting restrictions, waive, in whole or in part,
any forfeiture provisions or extend the term of any award).

The Committee may also determine whether the payment of any
proceeds of any award shall or may be deferred and may authorize
payments representing dividends or interest or their equivalents
in connection with any deferred award. The Committee may provide
that awards denominated in stock earn dividends or dividend
equivalents. Determinations and interpretations of the Committee
will be binding on all parties.

Eligibility

Employees and directors of the Company and of any other entity,
including a subsidiary or joint venture, that is directly or
indirectly controlled by the Company (collectively
affiliates) are eligible to receive awards under the
2003 Plan, as are other persons who have service relationships
with the Company which are covered by the 2003 Plans
definition of Employment. As of March 31, 2007
there were approximately 389 employees and directors holding
options or other awards granted under the 2003 Plan.

Incentive stock options may only be granted to employees of the
Company or of a parent corporation or
subsidiary corporation of the Company as those terms
are defined in Section 424 of the Code.

Awards

The 2003 Plan permits granting awards for: (1) stock
options, including incentive stock options (ISOs)
meeting the requirements of Section 422 of the Code;
(2) stock appreciation rights (SARs);
(3) stock awards, including restricted and unrestricted
stock and deferred stock, (4) performance awards, and
(5) cash awards that would constitute a derivative
security for purposes of
Rule 16b-6,
as promulgated under the Securities Exchange Act of 1934, as
amended (the 1934 Act), if not awarded pursuant
to a plan satisfying the provisions of
Rule 16b-3.

Shares Available
and Limits on Awards

If the Amendment is approved a total of 17,500,000 shares
of Common Stock would be authorized for issuance pursuant to
equity awards under the 2003 Plan. Of the 17,500,000 total
authorized shares, approximately 8,221,669 shares were
subject to outstanding awards and 1,126,610 shares had
already been issued pursuant to awards under the 2003 Plan as of
March 31, 2007. As such, following approval of the
Amendments, and based on the number of outstanding awards as of
March 31, 2007, approximately 8,151,721 shares of
Common Stock would be available for future awards under the 2003
Plan. These 8,151,721 available shares represent only
approximately 5% of the outstanding Common Stock as of the
record date. No more than approximately 37% of the total shares
authorized for issuance under the 2003 Plan, or
6,500,000 shares, may be delivered pursuant to awards other
than stock options or SARs.

The number of shares that may be subject to options and SARs
granted to any one individual may not exceed 1,000,000 in any
calendar year. The maximum benefit that may be paid to any
person under any other awards in any calendar year under the
2003 Plan will be, to the extent paid in shares,
200,000 shares and, to the extent paid in cash,
$1 million.

If any shares subject to an option or award under the 2003 Plan
are forfeited or if any such option or award terminates, the
shares previously covered by such option or award will be
available for future grant or award under the plan. If another
company is acquired by the Company or an affiliate in the
future, any grants or awards made and any of the Companys
shares delivered upon the assumption of or in substitution for
outstanding grants made by the acquired company may be deemed to
be granted or awarded under the 2003 Plan, but will not decrease
the number of shares available for grant or award under the 2003
Plan.

In the event of any stock dividend, stock split, combination or
exchange of shares, recapitalization or other change in the
Companys capital structure, the Committee will make
appropriate adjustments to reflect such change with respect to
(i) the aggregate number of shares that may be issued under
the 2003 Plan and the limits on certain types of awards under
the 2003 Plan; (ii) the number of shares subject to awards
under the 2003 Plan;
and/or
(iii) the

price per share for any outstanding stock options, SARs and
other awards under the 2003 Plan. To the extent consistent with
applicable rules, the Committee may make adjustments of the type
described in the preceding sentence to take into account other
events and circumstances if the Committee determines such
adjustments are appropriate to preserve the value of awards
under the 2003 Plan.

Additional
Terms of Awards

Options.
The Committee establishes the
exercise price per share for options, the term of options, the
time at which they may be exercised and such other terms as the
Committee deems appropriate, except that the exercise price of
each option shall be not less than the Fair Market Value (as
defined below) of the Common Stock on the date of grant.

Fair Market Value for purposes of the 2003 Plan
shall mean the average of the high and low sales prices of the
Common Stock as reported in The Wall Street Journal for New York
Stock Exchange Transactions or similar successor consolidated
transactions reports for the relevant date (or the comparable
consolidated transaction reports for any other national
securities exchange or for NASDAQ National Market Issues, if the
Common Stock is admitted for trading or quotation on said
exchange or market), or, if no sales of Common Stock were made
on said exchange or market on that date, the average of the high
and low prices of Common Stock as reported in said composite
transactions report for the preceding day on which sales of
Common Stock were made on said exchange or market. On
March 30, 2007, the average of the high and low sales
prices of the Common Stock, as reported in the New York Stock
Exchange Composite Transactions, was $28.87.

Subject to the limitations described below, options will become
exercisable at such time or times, and on and subject to such
conditions, as the Committee may specify. Except in the case of
awards made in connection with the recruitment of new employees,
including new officers, or new directors, stock options shall
vest in equal annual installments over a period of not less than
three years. Notwithstanding the foregoing, the Committee may
provide for the acceleration of vesting of stock options upon
the death, disability, retirement or other termination of
employment or service of the participant. Unless the Committee
determines otherwise, payment of the purchase price in full in
cash or shares is required upon option exercise.

Stock Appreciation Rights.
The holder of a SAR
will be entitled to receive the excess of the fair market value,
calculated as of the exercise date, of a specified number of
shares over the grant price of the SAR. SARs need not be granted
in tandem with stock options.

Stock Awards.
The 2003 Plan provides for the
award of restricted stock subject to forfeiture, deferred stock
and unrestricted stock which is immediately vested. A stock
award may provide the recipient with all of the rights of a
shareholder of the Company, including the right to vote the
shares and to receive any dividends.

Stock awards generally will be subject to certain conditions
established by the Committee, including continuous service with
the Company, achievement of specific business objectives, and
other measurements of individual, business unit or Company
performance. Except in the case of awards made in connection
with the recruitment of new employees, including new officers,
or new directors, awards of restricted stock shall vest not
earlier than three years from the date of grant. Notwithstanding
the foregoing, the Committee may provide for the acceleration of
vesting of restricted stock awards upon the death, disability,
retirement or other termination of employment or service of the
participant.

Performance Awards.
The Committee may grant
awards under the 2003 Plan, other than options and stock
appreciation rights, which are designed to qualify as
performance-based compensation. In the case of grants of stock
awards or cash awards, including to executive officers of the
Company designated by the Committee as a covered
employee under Section 162(m), the Committee may
establish one or more performance goals for such participant or
for the Company for the period of time designated by the
Committee at the time of grant of the award. As an example,
starting in 2006 the Company began granting contingent stock
performance awards which provide the recipients with the ability
to earn shares of the Companys Common Stock based upon the
Companys achievement of stated diluted earnings per share
and net revenues targets over specified performance periods.

The performance goals for each participant under a performance
award shall be objectively determinable measures of performance
based on any one or a combination of the following criteria:
cash net earnings; core brands

growth; core brands net revenues; cost control; earnings before
income taxes; earnings before interest and taxes; earnings
before interest, taxes and depreciation; earnings before
interest, taxes, depreciation and amortization; economic value
added; free cash flow; gross profit; net cash provided by
operating activities; net earnings; earnings per share; net
earnings per share; net revenues; operating margin; operating
profit; return on assets; return on capital investment; return
on net revenues; return on shareholders equity; sales;
stock price; total shareholder return on common stock relative
to S&P 500 Index; total shareholder return on common stock
relative to Russell 1000 Consumer Discretionary Index and
working capital. These business criteria may be measured on a
consolidated basis or on a segment, divisional, sector or other
business unit basis (herein collectively business
unit), all as selected by the Committee in each individual
case.

The percentage vesting of any stock award
and/or
cash
award shall in each case be based on the percentage of the
performance goal achieved, as determined by the Committee,
although the Committee generally has the discretion to reduce,
or refuse to make (but not to increase), any vesting of stock
awards or payments of cash awards payable as a result of the
achievement of a designated percentage of a performance goal.

Cash Awards.
Cash awards generally will be
subject to certain conditions established by the Committee,
including continuous service with the Company, achievement of
specific business objectives, and other measurements of
individual, business unit or Company performance.

General.
Awards may be granted for no cash
consideration or for such minimal cash consideration as may be
required by applicable law. Awards may provide that upon their
exercise or vesting the holder will receive cash, Common Stock
or any combination thereof as the Committee shall determine. Any
shares of stock deliverable under the 2003 Plan may consist in
whole or in part of authorized and unissued shares or treasury
shares.

Neither ISOs, nor, except as the Committee otherwise
expressly provides, other awards may be transferred other than
by will or by the laws of descent and distribution, and during a
participants lifetime ISOs (and, except as the
Committee otherwise expressly provides, other non-transferable
awards requiring exercise) may be exercised only by the
participant.

The 2003 Plan provides that immediately upon certain events
constituting a Change in Control all awards become 100% vested
and the value payable in either cash or shares of the
Companys Common Stock, in the discretion of the Committee,
as soon as practicable after the Change in Control.

The awards that will be made and the amounts that will be paid
pursuant to the 2003 Plan in the future are discretionary and
are therefore not currently determinable.

The following table sets forth the number of shares (excluding
shares covered by awards which did not become effective) subject
to options, restricted stock and deferred restricted stock
awards and contingent stock performance awards (which contingent
stock performance awards are included at the target number of
shares for such awards) which were granted under the 2003 Plan
during the period from February 12, 2003 to March 31,
2007 (the approximately four years the 2003 Plan had been in
existence as of March 31, 2007) to the named
individuals, all current executive officers as a group, all
current directors who are not executive officers and were not
executive officers at the time of grant, as a group, and all
employees, excluding executive officers.

All current executive officers as
a group (including the five officers above)

3,298,342

All current directors, who were
not executive officers at the time of grant, as a group

52,459

All employees, excluding current
executive officers and directors (to the extent awards were
received while a director but not while an executive officer),
as a group

5,997,478

(1)

(1)

Awards previously granted to Alan Hassenfeld, who is currently a
director of the Company, but was formerly an executive officer
of the Company as well, are included in this total to the extent
they were granted to Mr. Hassenfeld in his capacity as an
employee of the Company, rather than as a Board member.

Amendment
or Termination

The Board or the Committee may terminate the 2003 Plan at any
time, and shall have the right to amend or modify the 2003 Plan
at any time, and from time to time, provided, however, that no
material amendment to the terms of the 2003 Plan, including an
amendment to reprice options granted under the Plan, shall
become effective without shareholder approval. The 2003 Plan
will terminate on December 31, 2010, unless terminated
earlier by the Board or the Committee.

Federal
Income Tax Consequences of Certain Awards

The following is a summary of the principal United States
federal income tax consequences generally applicable to certain
awards under the 2003 Plan. Note that there may be state, local,
foreign and other taxes applicable to participants in the 2003
Plan.

The grant of a stock option or SAR under the 2003 Plan will
generally create no immediate tax consequences for the recipient
or for the Company or an affiliate employing such individual
(the employer). An employee exercising an ISO has no
taxable income for regular income tax purposes (but the
alternative minimum tax may apply) in connection with the
exercise, and no tax deduction is available to the employer. In
general, an ISO that is

exercised by the recipient more than three months following
termination of employment is treated as a non-ISO for federal
income tax purposes, as are stock options granted to an employee
and otherwise qualifying as ISOs that in the aggregate
first become exercisable in any calendar year for stock having a
grant-date value in excess of $100,000.

Upon exercising a stock option other than an ISO, the optionee
has ordinary income equal to the excess of the fair market value
of the shares acquired on the date of exercise over the option
exercise price, and a corresponding tax deduction is available
to the employer. Upon exercising a SAR, the amount of any cash
received and the fair market value on the exercise date of any
shares or other property received are taxable to the recipient
as ordinary income and a corresponding deduction is available to
the employer.

The tax consequence to an optionee of a disposition of shares
acquired through the exercise of a SAR or a stock option will
depend on how long the shares have been held and upon whether
the shares were acquired by exercising an ISO or by exercising a
SAR or stock option other than an ISO. An employee who disposes
of shares acquired upon exercise of an ISO, if the disposition
occurs within one year following the date of exercise or within
two years from the date of grant of the ISO, will have income,
taxable at ordinary income rates, equal in general to the spread
at exercise (or, with limited exceptions, to the gain on sale,
if less), and a corresponding deduction will be available to the
employer. Any additional gain recognized in the disposition will
be taxed as a capital gain, either at long-term or at short-term
gain rates depending on the employees tax holding period
in the shares. Any gain or loss recognized upon a sale or
exchange of shares acquired upon exercise of a stock option
other than an ISO or a SAR will be taxed as a capital gain or
loss, long-term or short-term depending on the holders tax
holding period in the shares. No deduction is available to the
employer in respect of these capital gains or losses.

If cash, shares of Common Stock or other property is transferred
under or in settlement of other awards under the 2003 Plan,
including if shares are earned by a recipient pursuant to a
contingent stock performance award which provides the
opportunity to earn shares if the Company meets certain
performance targets over a stated performance period, the
recipient will generally recognize ordinary income at the time
the property or shares are transferred to or earned by the
recipient equal to the excess of (a) the cash (if any)
transferred, plus the fair market value of the vested shares or
other vested property (if any) transferred over (b) the
amount (if any) paid for such shares or other property by the
participant, and a corresponding deduction will be available to
the employer. If any of the transferred shares or other property
is unvested (subject to a substantial risk of forfeiture), the
ordinary income associated with the transfer will be includible
and measured only when the property vests (and the associated
deduction will be similarly delayed), unless the award recipient
makes a special election to take the awarded shares or other
property into income at the time of transfer.

Some awards under the 2003 Plan could constitute or give rise to
nonqualified deferred compensation subject to
Section 409A of the Code. Where applicable,
Section 409A regulates, among other things, both the
deferral of compensation and the time and manner in which
previously deferred amounts may be paid.

Approval

The affirmative vote of a majority of the shares of Common Stock
present (in person or by proxy) and entitled to vote at the
Meeting on the Amendments to the 2003 Plan is required for
approval of the Amendments. Abstentions are considered shares
entitled to vote on the proposal and as such abstentions are the
equivalent of a vote against the proposal. In contrast, broker
non-votes are not counted as present and entitled to vote on the
proposal and therefore have no effect on the outcome of the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR
APPROVAL OF THE AMENDMENTS TO THE 2003 PLAN.

The following table summarizes information, as of
December 31, 2006, relating to equity compensation plans of
the Company pursuant to which grants of options, restricted
stock, restricted stock units, performance shares or other
rights to acquire shares may be granted from time to time.

Equity
Compensation Plan Information

Number of Securities

Remaining Available for

Number of Securities

Future Issuance Under

to be Issued Upon

Weighted-Average

Equity Compensation

Exercise of Outstanding

Exercise Price of

Plans (Excluding

Options, Warrants

Outstanding Options,

Securities Reflected

and Rights

Warrants and Rights

in Column(a))

Plan Category

(a)

(b)(3)

(c)

Equity compensation plans approved
by shareholders(1)

14,450,664

$

19.32

1,147,344

(4)

Equity compensation plans not
approved by shareholders(2)

3,692,740

(5)

21.17

0

(6)

Total

18,143,404

19.71

1,147,344

(4)

(1)

The only shareholder approved plan which was in effect as of
December 31, 2006 was the Companys 2003 Stock
Incentive Performance Plan (the 2003 Equity Plan).

The 1995 Stock Incentive Performance Plan (the 1995
Plan) expired on December 31, 2005 and the 2003 Stock
Option Plan for Non-Employee Directors (the
2003 Director Plan) was terminated effective as
of December 31, 2005. The Companys 1994 Stock Option
Plan for Non-Employee Directors (the 1994 Plan),
which was also approved by the Companys shareholders, was
terminated effective May 14, 2003. Although no further
awards may be made under the 1995 Plan, 2003 Director Plan
or the 1994 Plan, awards outstanding under those plans as of the
dates of their termination continue in effect in accordance with
the terms of the applicable plan.

Included in shares which may be issued pursuant to outstanding
awards are the target number of shares subject to outstanding
contingent stock performance awards under the 2003 Equity Plan.
The actual number of shares, if any, which will be issued
pursuant to these awards may be higher or lower than this target
number based upon the Companys achievement of the
applicable performance goals over the performance periods
specified in these awards.

Also includes shares granted to outside directors in May 2006 to
the extent that such directors deferred receipt of those shares
until they retire from the Board.

(2)

The Companys last non-shareholder approved plan, namely
the 1997 Employee Non-Qualified Stock Plan (the 1997
Plan), expired on December 31, 2002 and no further
awards may be made pursuant to the 1997 Plan, provided, however,
that all awards outstanding under the 1997 Plan as of the date
of its termination continued in effect in accordance with the
terms of the plan.

(3)

The weighted average exercise price of outstanding options,
warrants and rights excludes restricted stock units and
performance-based stock awards, which do not have an exercise
price.

(4)

All of these available shares could be issued as restricted
stock or deferred restricted stock under the 2003 Plan.

The 1997 Plan expired on December 31, 2002 and no shares
remain available for future grant under plans not approved by
the shareholders. See Note (2) above.

1997
Employee Non-Qualified Stock Plan

Number of Shares Subject to 1997
Plan.
The 1997 Plan, prior to its termination on
December 31, 2002, provided for the issuance of up to
18,000,000 shares of Common Stock pursuant to awards
granted under the 1997 Plan.

Eligibility for Participation.
Any
Employee of the Company, as the term Employee is
defined in General Instruction A to
Form S-8
promulgated by the Securities and Exchange Commission, was
eligible to participate in the 1997 Plan.

Awards.
The 1997 Plan provided for the grant
of: (1) non-qualified stock options; (2) stock
appreciation rights (SARs); (3) stock awards,
including restricted and unrestricted stock and deferred stock,
and (4) cash awards that would constitute a
derivative security for purposes of
Rule 16b-6,
as promulgated under the Securities Exchange Act of 1934, as
amended (the 1934 Act), if not awarded pursuant to a
plan satisfying the provisions of
Rule 16b-3.

Terms of Options.
The exercise price of stock
options granted under the 1997 Plan could not be less than the
fair market value of the Common Stock on the date of grant.
Options granted under the 1997 Plan were generally made
exercisable in yearly installments over three years. The terms
of options granted under the 1997 Plan were ten years.

Change in Control.
The 1997 Plan provided that
immediately upon certain events constituting a Change in Control
all awards become 100% vested and payable in cash as soon as
practicable after the Change in Control.

The following table sets forth information, as of March 1,
2007 (except as noted), with respect to the ownership of the
Common Stock (the only class of outstanding equity securities of
the Company) by certain persons known by the Company to be the
beneficial owners of more than 5% of such stock. Unless
otherwise indicated, to the Companys knowledge each person
has sole voting and dispositive power with respect to such
shares.

Amount and Nature

of Beneficial

Percent

Name and Address of Beneficial Owner

Ownership(1)

of Class

Alan G. Hassenfeld

16,854,404

(2)

10.3

1027 Newport Avenue
Pawtucket, RI 02862

George W. Lucas, Jr.

15,750,000

(3)

8.9

c/o Lucasfilm Ltd.
5858 Lucas Valley Road
Nicasio, CA 94946

State Street Bank and Trust Company

10,210,828

(4)

6.3

225 Franklin Street
Boston, MA 02110

Barclays Global Investors, NA

9,919,880

(5)

6.1

Barclays Global Fund Advisors

Barclays Global Investors, Ltd.

Barclays Global Investors Japan
Trust and Banking Company Limited

Barclays Global Investors Japan
Limited

45 Fremont Street
San Francisco, CA 94105

(1)

Based upon information furnished by each shareholder or
contained in filings made with the Securities and Exchange
Commission. There were 161,637,586 shares of Common Stock
outstanding on March 1, 2007.

(2)

Includes 7,690,921 shares held as sole trustee for the
benefit of his mother, 829,347 shares held as sole trustee
of a trust for Mr. Hassenfelds benefit,
1,000,188 shares subject to a prepaid variable forward sale
arrangement which is scheduled to settle in February 2008, 4,769
shares the receipt of which is deferred until Mr. Hassenfeld
retires from the Board and currently exercisable options or
options exercisable within 60 days of March 1, 2007 to
purchase 1,573,103 shares. Mr. Hassenfeld has sole
voting and investment authority with respect to all shares
except those described in the following sentence, as to which he
shares voting and investment authority. Also includes
526,478 shares owned by The Hassenfeld Foundation, of which
Mr. Hassenfeld is an officer and director,
279,892 shares held as one of the trustees of a charitable
lead trust for the benefit of The Hassenfeld Foundation and
154,216 shares held as one of the trustees of a trust for
the benefit of his mother and her grandchildren.
Mr. Hassenfeld disclaims beneficial ownership of all shares
except to the extent of his proportionate pecuniary interest
therein.

(3)

Represents exercisable warrants to purchase
6,300,000 shares owned by LucasFilm Ltd. (Film)
and exercisable warrants to purchase 9,450,000 shares owned
by its wholly-owned subsidiary, Lucas Licensing Ltd.
(Licensing). Mr. Lucas, as founder, controlling
person and a director of Film and Licensing, may be deemed to
beneficially own the shares of Common Stock which may be
purchased upon exercise of these warrants. Share ownership
information is as of January 30, 2003 as reported in a
Schedule 13D/A filed February 10, 2003. See
Certain Relationships and Related Transactions.

(4)

State Street Bank and Trust Company reported that it had sole
voting power and shared dispositive power over all
10,210,828 shares. Share ownership information is as of
December 31, 2006 as reported in a Schedule 13G dated
February 13, 2007.

The following table sets forth information, as of March 1,
2007, with respect to the ownership of the Common Stock (the
only class of outstanding equity securities of the Company) by
each current director of the Company or nominee for election to
the Board, each named executive officer and by all directors and
executive officers as a group. Unless otherwise indicated, each
person has sole voting and dispositive power with respect to
such shares.

Amount and

Nature of

Beneficial

Percent

Name of Director, Nominee or Executive Officer(1)

Ownership

of Class

Basil L. Anderson(2)

47,241

*

Alan R. Batkin(3)

46,302

*

Frank J. Biondi, Jr.(4)

36,819

*

Jack M. Connors(5)

26,116

*

Simon Gardner(6)

84,700

*

Michael W.O. Garrett(7)

21,992

*

E. Gordon Gee(8)

41,672

*

Brian Goldner(9)

507,607

*

Jack M. Greenberg(10)

24,656

*

David D.R. Hargreaves(11)

408,884

*

Alan G. Hassenfeld(12)

16,854,404

10.3

Claudine B. Malone(13)

31,295

*

Barry Nagler(14)

614,179

*

Edward M. Philip(15)

46,132

*

Paula Stern(16)

43,436

*

Alfred J. Verrecchia(17)

1,947,185

1.2

All Directors and Executive
Officers as a Group (includes 19 persons)(18)

21,004,159

12.6

*

Less than one percent.

(1)

Information in this table is based upon information furnished by
each director and executive officer. There were
161,637,586 shares of Common Stock outstanding on
March 1, 2007.

(2)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 25,000 shares, 4,769 shares the receipt of which is
deferred until Mr. Anderson retires from the Board, as well
as 16,472 shares deemed to be held in
Mr. Andersons stock unit account under the Deferred
Plan.

(3)

Includes 4,769 shares the receipt of which is deferred
until Mr. Batkin retires from the Board and
39,846 shares deemed to be held in Mr. Batkins
stock unit account under the Deferred Plan.

(4)

Represents currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 27,250 shares, 4,769 shares the receipt of which is
deferred until Mr. Biondi retires from the Board, as well
as 4,800 shares deemed to be held in Mr. Biondis
stock unit account under the Deferred Plan.

(5)

Represents currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 11,200 shares, 4,769 shares the receipt of which is
deferred until Mr. Connors retires from the Board, as well
as 10,147 shares deemed to be held in
Mr. Connors account under the Deferred Plan.

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 73,750 shares.

(7)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 2,400 shares, 4,769 shares the receipt of which is
deferred until Mr. Garrett retires from the Board and
4,923 shares deemed to be held in Mr. Garretts
stock unit account under the Deferred Plan.

(8)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 27,250 shares as well as 9,653 shares deemed to be
held in Mr. Gees account under the Deferred Plan.

(9)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 430,000 shares, as well as 20,000 shares of
restricted stock which are scheduled to vest on January 20,
2009.

(10)

Represents currently exercisable options and options exercisable
within sixty day of March 1, 2007 to purchase
11,200 shares, 4,769 shares the receipt of which is
deferred until Mr. Greenberg retires from the Board as well
as 8,687 shares deemed to be held in
Mr. Greenbergs stock unit account under the Deferred
Plan.

(11)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 345,500 shares.

(12)

See note (2) to the immediately preceding table.

(13)

Includes 3,576 shares deemed to be held in
Ms. Malones stock unit account under the Deferred
Plan as well as 22,500 shares held by the Claudine B.
Malone Family Trust.

(14)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 588,167 shares.

(15)

Represents currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 25,000 shares, 4,769 shares the receipt of which is
deferred until Mr. Philip retires from the Board as well as
16,363 shares deemed to be held in Mr. Philips
stock unit account under the Deferred Plan.

(16)

Represents currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 27,250 shares, 4,769 shares the receipt of which is
deferred until Ms. Stern retires from the Board as well as
11,417 shares deemed to be held in Ms. Sterns
stock unit account under the Deferred Plan.

(17)

Includes currently exercisable options and options exercisable
within sixty days of March 1, 2007 to purchase an aggregate
of 1,687,834 shares as well as 30,829 deferred restricted
stock units granted under the Companys employee stock
option plans. Does not include 151,875 shares owned by
Mr. Verrecchias wife, as to which Mr. Verrecchia
disclaims beneficial ownership.

(18)

Of these shares, all directors and executive officers as a group
have sole voting and dispositive power with respect to
20,043,573 shares and have shared voting
and/or
dispositive power with respect to 960,586 shares. Includes
5,052,137 shares purchasable by directors and executive
officers upon exercise of currently exercisable options, or
options exercisable within sixty days of March 1, 2007;
125,884 shares deemed to be held in stock unit accounts
under the Deferred Plan and the Deferred Compensation Plan; and
30,829 shares deemed to be held in deferred restricted
stock unit accounts under the Companys 1997 Employee
Non-Qualified Stock Plan.

SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Companys directors and executive
officers, and persons who own more than ten percent of a
registered class of the Companys equity securities, to
file with the United States Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than ten-percent
shareholders are required by regulations promulgated by the
United States Securities and Exchange Commission to furnish the
Company with copies of all Section 16(a) forms they file.

To the Companys knowledge, based solely on review of the
copies of such reports furnished to the Company and certain
written representations made by directors and executive officers
that no other reports were required during the last fiscal year
ended December 31, 2006, all Section 16(a) filing
requirements applicable to its officers, directors and greater
than ten-percent beneficial owners were complied with during
fiscal 2006.

PROPOSAL TO
RATIFY THE SELECTION OF KPMG LLP AS THE COMPANYS
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2007 FISCAL YEAR

(Proposal No. 3)

The Audit Committee has selected KPMG LLP, independent
registered public accounting firm (KPMG), to perform
the integrated audit of the consolidated financial statements
and effectiveness of internal control over financial reporting
of the Company for the fiscal year ending December 30, 2007
(Fiscal 2007), and the Companys Board has
ratified this selection. A representative of KPMG is expected to
be present at the Meeting, will have the opportunity to make a
statement if so desired, and will be available to respond to
appropriate questions.

The Board is submitting the selection of KPMG as the
Companys independent registered public accounting firm for
Fiscal 2007 to the shareholders for their ratification. The
Audit Committee of the Board bears the ultimate responsibility
for selecting the Companys independent registered public
accounting firm and will make the selection it deems best for
the Company and the Companys shareholders. As such, the
failure by the shareholders to ratify the selection of
independent registered public accounting firm made by the Audit
Committee will not require the Audit Committee to alter its
decision. Similarly, ratification of the selection of KPMG as
the independent registered public accounting firm does not limit
the Committees ability to change this selection in the
future if it deems appropriate.

Approval

The affirmative vote of a majority of the shares of Common Stock
present (in person or by proxy) and entitled to vote at the
Meeting on the ratification of the selection of KPMG is required
for approval. Abstentions are considered shares entitled to vote
on the proposal and as such abstentions are the equivalent of a
vote against the proposal. In contrast, broker non-votes are not
counted as present and entitled to vote on the proposal and
therefore have no effect on the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR
RATIFICATION OF THE SELECTION OF KPMG AS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2007.

The Audit Committee of the Board (the Committee) is
comprised solely of non-employee directors, each of whom has
been determined by the Board to be independent under the
Companys Standards for Director Independence and the
requirements of the New York Stock Exchanges corporate
governance listing standards.

The Committee operates under a written charter, which is
available on the Companys website (www.hasbro.com) under
Corporate Information  Investors 
Corporate Governance. Under the charter, the
Committees primary purpose is to:



Appoint the independent registered public accounting firm
(hereafter referred to as the independent auditor) and oversee
the independent auditors work; and



Assist the Board in its oversight of the:



Integrity of the Companys financial statements;



Companys compliance with legal and regulatory requirements;



Independent auditors qualifications and
independence; and



Performance of the Companys internal audit function and
independent auditor.

In conducting its oversight function, the Committee discusses
with the Companys internal auditors and independent
auditors, with and without management present, the overall scope
and plans for their respective audits. The Committee also
reviews the Companys programs and key initiatives to
implement and maintain effective internal controls over
financial reporting and disclosure controls.

The Committee meets with the Companys head of internal
audit, and with the independent auditors, with and without
management present, to discuss the results of their
examinations, the evaluations of the Companys internal
controls and the overall quality of the Companys financial
reporting. The Committee discusses with management and the
independent auditors all annual and quarterly financial
statements and Managements Discussion and Analysis of
Financial Condition and Results of Operations prior to their
filing with the United States Securities and Exchange Commission.

The independent auditors are responsible for performing an
independent integrated audit of the Companys financial
statements and effectiveness of internal control over financial
reporting and issuing an opinion as to whether the financial
statements conform with accounting principles generally accepted
in the United States of America.

The Committee has reviewed and discussed with management the
audited financial statements for the fiscal year ended
December 31, 2006. The Committee has also reviewed and
discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees). In addition, the
Committee discussed with the independent auditors their
independence from management and the Committee has received from
the independent auditors the written disclosures required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).

Based on its review and discussions with management and the
independent auditors referred to in the preceding paragraph, the
Committee recommended to the Board and the Board has approved
the inclusion of the audited financial statements for the fiscal
year ended December 31, 2006 in the Companys Annual
Report on
Form 10-K
for filing with the United States Securities and Exchange
Commission. The Committee has also selected and the Board has
approved the selection of KPMG LLP as the independent auditor
for Fiscal 2007.

Report issued by Basil L. Anderson (Chair), Michael W.O.
Garrett, Claudine B. Malone and Edward M. Philip, as the members
of the Audit Committee as of the 2006 fiscal year end.

The following table presents fees for professional audit
services rendered by KPMG LLP for the audit of the
Companys annual financial statements for fiscal 2006 and
2005, as well as fees for other services rendered by KPMG to the
Company during fiscal 2006 and 2005.

2006

2005

Audit Fees(1)

$

4,074,000

$

4,372,000

Audit-Related Fees(2)

$

108,000

$

101,000

Tax Fees(3)

$

1,163,000

$

1,464,000

All Other Fees





Total Fees

$

5,345,000

$

5,937,000

(1)

Audit fees consist of work related to the integrated audit of
the Companys consolidated financial statements and
effectiveness of internal control over financial reporting.
Audit fees also include consultations on accounting and
reporting matters, as well as work generally only the
independent auditor can reasonably be expected to provide, such
as statutory audits and work in connection with filings with the
United States Securities and Exchange Commission.

(2)

Audit-Related Fees consist of fees for audits of financial
statements of employee benefit plans and agreed upon procedures
reports.

(3)

Tax Fees consist of fees for tax consultation and tax compliance
services rendered to the Company and certain current and former
employees.

The Audit Committee has considered whether the provision of the
approved non-audit services by KPMG is compatible with
maintaining KPMGs independence and has concluded that the
provision of such services is compatible with maintaining
KPMGs independence.

Policy on
Audit Committee Pre-Approval of Audit Services and Permissible
Non-Audit Services of the Independent Registered Public
Accounting Firm

Consistent with the rules and regulations of the United States
Securities and Exchange Commission regarding auditor
independence, the Audit Committee has responsibility for
appointing, setting compensation for and overseeing the work of
the independent registered public accounting firm (hereafter
referred to as the independent auditor). In fulfilling this
responsibility the Audit Committee has established a policy to
pre-approve all audit and permissible non-audit services to be
provided by the independent auditor.

Prior to engagement of the independent auditor for the fiscal
year, management of the Company submits to the Audit Committee
for the Committees pre-approval:



A description of, and estimated costs for, the proposed audit
services to be provided by the independent auditor for that
fiscal year.



A description of, and estimated costs for, the proposed
non-audit services to be provided by the independent auditor for
that fiscal year. These non-audit services are comprised of
permissible audit-related, tax and other services, and
descriptions and estimated costs are proposed for these
permissible non-audit services.

Audit and permissible non-audit services which are pre-approved
by the Audit Committee pursuant to this review may be performed
by KPMG during the fiscal year. During the course of the year
management periodically reports to the Audit Committee on the
audit and non-audit services which are being provided to the
Company pursuant to these pre-approvals.

In addition to pre-approving all audit and permissible non-audit
services at the beginning of the fiscal year, the Audit
Committee has also instituted a procedure for the consideration
of additional services that arise during the course of the year
for which the Company desires to retain KPMG. For individual
projects with estimated fees of $75,000 or less which have not
previously been pre-approved by the Audit Committee, the Chair
of the Audit Committee is authorized to pre-approve such
services. The Chair of the Committee reports any services which
are pre-approved in this manner to the full Audit Committee at
its next meeting. Any proposed additional projects with an
estimated cost of more than $75,000 must be pre-approved by the
full Audit Committee prior to the engagement of KPMG.